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Some of the easy money (figuratively and literally) might have ended yesterday.
The questions investors will now be asking themselves are:
What role has liquidity played in the market rally, and what will be the impact if some of that liquidity is taken out of the markets?
What role has zero-interest-rate policy played on domestic economic growth, and without interest rates at zero, will the domestic economic recovery be self-sustaining?
Has zero-rate policy begun to lose its impact on the economy? Are zero interest rates doing more harm than good as the policy penalizes the savings class and has inflationary consequences?
We have experienced a persistent market advance that has virtually expunged pessimism from Wall Street. I recognize that the cause for the optimism has been the improvement in high-frequency economic statistics, but market tops and corrections almost always occur when there is a plethora of good news - similar to what we see today.
The question is always whether the better macro has been discounted in the advance in stocks.
Based on my work, the S&P 500 is fairly valued at levels below where we stand, and the market has overshot to the upside.
To many, the S&P appears reasonably priced at only 13.5x, but I would emphasize that for the small-cap index, the midcap index, S&P excluding financials and the Value Line Index, median P/E ratios are all over 16x. And those multiples are calculated at a time when corporate profit margins are at 57-year highs. These margins are vulnerable to rising costs, more limited corporate pricing power and obvious pockets of geographic economic weakness (such as Europe).
As I expressed last week on "Fast Money" and again yesterday, there are other issues (technical and fundamental) that concern me as well. I think the bulls are overstating their welcome.
In a narrow NBA (nothing-but-Apple (AAPL_)) market:
Breadth is lagging.
Eighty-five percent of S&P holdings trade above their moving averages.
Only 3% of S&P holdings are oversold.
Volume is dropping (and is unconvincing).
New highs are making lower lows.
The transports are signaling problems and slowdown ahead.
The Russell 2000 has begun to noticeably underperform iShares Russell 2000 Index Fund (IWM_), down almost 2% even though S&P cash was down only 6.5 points.
These are not typically the ingredients for a durable leg higher.
Getting back to Wednesday's action, it wasn't what Chairman Bernanke said; it was what he didn't say. And he didn't say that we are getting more more quantitative easing (QE3).
www.thestreet.com/story/11440580/1/kass-my-fast-money-recap.html
Some of the easy money (figuratively and literally) might have ended yesterday.
The questions investors will now be asking themselves are:
What role has liquidity played in the market rally, and what will be the impact if some of that liquidity is taken out of the markets?
What role has zero-interest-rate policy played on domestic economic growth, and without interest rates at zero, will the domestic economic recovery be self-sustaining?
Has zero-rate policy begun to lose its impact on the economy? Are zero interest rates doing more harm than good as the policy penalizes the savings class and has inflationary consequences?
We have experienced a persistent market advance that has virtually expunged pessimism from Wall Street. I recognize that the cause for the optimism has been the improvement in high-frequency economic statistics, but market tops and corrections almost always occur when there is a plethora of good news - similar to what we see today.
The question is always whether the better macro has been discounted in the advance in stocks.
Based on my work, the S&P 500 is fairly valued at levels below where we stand, and the market has overshot to the upside.
To many, the S&P appears reasonably priced at only 13.5x, but I would emphasize that for the small-cap index, the midcap index, S&P excluding financials and the Value Line Index, median P/E ratios are all over 16x. And those multiples are calculated at a time when corporate profit margins are at 57-year highs. These margins are vulnerable to rising costs, more limited corporate pricing power and obvious pockets of geographic economic weakness (such as Europe).
As I expressed last week on "Fast Money" and again yesterday, there are other issues (technical and fundamental) that concern me as well. I think the bulls are overstating their welcome.
In a narrow NBA (nothing-but-Apple (AAPL_)) market:
Breadth is lagging.
Eighty-five percent of S&P holdings trade above their moving averages.
Only 3% of S&P holdings are oversold.
Volume is dropping (and is unconvincing).
New highs are making lower lows.
The transports are signaling problems and slowdown ahead.
The Russell 2000 has begun to noticeably underperform iShares Russell 2000 Index Fund (IWM_), down almost 2% even though S&P cash was down only 6.5 points.
These are not typically the ingredients for a durable leg higher.
Getting back to Wednesday's action, it wasn't what Chairman Bernanke said; it was what he didn't say. And he didn't say that we are getting more more quantitative easing (QE3).
www.thestreet.com/story/11440580/1/kass-my-fast-money-recap.html
