Stocks struggled higher last week, crossing Friday's finish like Sunday's NYC marathon runners. Exhausted.
Recall our take on large cap U.S. equities. They have risen like helium balloons since the onset of the '09 recovery. Yet, the U.S. corporate behemoths currently sit well above their 100-day moving averages, which can only mean one of two things: 1) Stocks blow through the tops of their channel into a whole new stratosphere, or 2) Stocks correct a bit and settle down from these elevated levels.
Considering that November and December have historically been the best dual-monthly period of the year, with an 82 percent rate of growth to close the calendar, I'd happily hope and settle for the former.
Last week we touched upon the death of iconic musician Lou Reed. While I was never an impresario of Reed's music, I did enjoy much of his work. Moreover, I am impressed by the durability of Reed's couth and sense of style. He was the embodiment of COOL. And not for a brief stint. But for decades. His tastes, opinion and portfolio of work will always stand for the enduring individuality of the rocker/artist icon.
In that vein, I saw this article on Slate. It covers the history and future of Cool. Should be enjoyed by anyone who ever appreciated the embodiment and projection of Cool.
350 of S&P 500 companies have reported Q3 earnings. 76 percent have exceeded earnings expectations. 53 percent of beaten revenue estimates. The index trades at 15.9 times earnings. Still not overvalued.
The DJIA is up 18 percent on the year. The S&P? 23 percent. While the Russell 2K small caps and Nasdaq are each up roughly 30 percent.
Case-Shiller reports that home prices increased 12.8 percent, beating expectations.
Bloomberg's index reports that overall financial conditions are improving. This index has traditionally been an excellent recession forecaster. It portends smooth sailing, for now.
Oil prices continued to drop, which could help buoy U.S. Christmas shopping efforts.
Major foreign indices were up last week. U.S. stocks treaded water.
Chinese manufacturing output increased, as The Middle Kingdom's economy appears to have stabilized.
U.S. investors are sitting on 48 percent cash. There is ample liquidity to be deployed in order to drive stocks higher once the concentric circles of fear cease to emanate from the three-ring circus that is the nation's capital.
Finally, it's year-end rally time! Historically, when markets are up 10 percent or more at this time of year, stocks tend to rise 82 percent of the time in November and December. In fact, November is traditionally the second-best performing month of the year, behind April.
The negative feedback loop of the U.S. government shutdown has begun. Consumer confidence dropped. The Fed awaits more positive economic signs prior to tapering its stimulus efforts. Housing, retail sales and inflation were subdued. Net employment growth declined.
Of course, what do you expect? If a Boy Scout Den Leader takes the troop camping and proceeds to start a forest fire, will the pack be more or less confident thereafter?
The eurozone continues to post record high unemployment.
Ominously, there is growing angst among pundits and talking heads about the coming market correction. "Stocks are too high!" "Stocks are too pricey!" "The economy is at recession's door!" Be it CNBC, Business Insider or USA Today, there is a growing crescendo of market negativity.
The Bottom Line
When the Punditocracy is screaming for a market correction, then you can sigh with relief. Because they rarely nail it. As we pointed out last week, most corrections occur on the heels of rising interest rates and a spike in oil prices. We have neither.
In fact, we have falling initial jobless claims, improving economic growth, increased hiring, improving earnings, moderate growth, low inflation, higher home prices and solid auto sales.
Moreover, we have seasonality on our side. Which means that those investors choosing to side with Chicken Little and not participate, even as the market is spooning out heaping helpings of generous returns, will likely look back regretfully.
Plenty of problems ahead. Yet, they are not enough to sidetrack the market's current trajectory. In the words of Mike Royko, we may be wrong, but we doubt it.
Keep your stops tight and stay with the trend.
Major markets struggled higher last week. The DJIA rose 0.29%, the S&P 500 gained 0.11%, and the Nasdaq fell 0.54%. Small cap stocks dropped 2.03%. And the 10-year Treasury bond yield rose 11 basis points to 2.62%. Gold lost $34.60 per ounce, down 2.56%.