The week ending December 2nd wound up being one of the best for the global stock market in years—and that’s saying something considering the rocket-ship takeoff in stocks back in ’09.
What’s amazing is, after a few bad weeks in November, there were all sorts of headlines declaring no chance of the fabled “Santa Rally.” Really? With all this volatility and a whole month to go?
Whether we get a nice rally to end the year or not, this is just another example in what’s been a year of manic, myopic sentiment—taking a few weeks (or even a few trading sessions) and extrapolating that trend out further into the future.
Despite all the teeth gnashing this year, global stocks are down a few percent on a total return basis, and the S&P 500 is up a little. It’s a year that’s confounded both bulls and bears.
Remember, stock investors should care greatly about the overall direction of the economy. But economic growth as measured by GDP is different than investing in the future profits of a company.
- S&P 500 Showing Record Sales Clashes With Slower Growth Rate
- Capital Spending Nears 2008 Level as U.S. Skates New Recession
This blog has made this point often, but it can’t be repeated enough.
With markets jittery and dipping into correction territory, here’s a follow up to my recent entry, Economy versus Earnings:
According to Thomson Reuters, as of July 29th:
- The S&P 500 estimated earnings growth rate for Q2 is 10.3% based on companies reporting thus far. (16.3% if you exclude Bank of America)
- 73% of the 327 companies in the S&P 500 that have reported have beaten estimates
Of course, earnings are backward-looking (they describe the past, not the future). But what this illustrates is that corporate earnings (part of the heart and soul of stock investing), are in fine shape right now.
Also, see my “Market yips” entry from June 16th: “Big up years, up a-little-years, and down years all have big individual up and down days. Stick with your strategy and don’t let market down days yip you into mistakes.” We can add to that: corrections routinely happen during perfectly fine market years, too.
Days like the ones lately aren’t easy to swallow, but getting whipsawed by a market correction is far worse.
- Useful factoid: as of Friday, the S&P 500 was up 5.1% for the quarter. If it doesn’t lose any ground from now to the end of the month (today was a nice up day as well), it’ll be the best Q1 return for the S&P 500 since 1996 (+5.4%). (Source: Global Financial Data, Inc.)
- Consumers in the US keep spending: Consumption rose in February for a fifth consecutive month. This is without a big rebound in employment so far—which is almost totally contrary to the intelligencia’s normal view of how a recovery ought to work. Personal income was virtually flat m/m but rose +2% from a year ago. All this in the context of a very low inflation environment.
- 2009 was so “too big to fail”. We’re over it. 2010 is all about…too big to succeed! If this isn’t a shining example investors have capital and are looking to put it back to work, I’m not sure what is…