2012: 2011 ALL OVER AGAIN?
This year’s market performance is similar to last year in uncanny ways, as Michael Santoli notes in this week’s Barrons:
“Aside from that, the market’s field position and the attendant investor-sentiment picture look quite as they did a year ago, a moment that preceded a pretty swift 6.5% reversal in the Standard & Poor’s 500 index, a drop aided in its final stages by the shock of the Japan tsunami in March. The market then bounced to a marginal new high in late April before the European mess and U.S. recession watch spoiled the summer.
At the equivalent point last year, the S&P 500, now at 1342.64, closed at 1343, and because 2010 and 2011 ended with the index at identical levels, the year-to-date rise has been almost equivalent, as has the trajectory of the healthy gain since the prior early October. Until Friday, the market had gone longer without a 1% down day than any period since the one that ended in mid-January 2011.
And check out the relevant gauges of investor attitudes. As can be seen in the Market Laboratory section, the Consensus Inc. bulls are at 72%; they were 71% a year ago. Market Vane is at 66% versus 67%. The American Association of Individual Investors poll, after a spike in optimism last week, sits at 51.6% bulls and 20.2% bears, compared to 49.4% and 26.9% a year ago. Typically, markets don’t accommodate the inclinations of such a lopsided majority in the very near term, anyway.”
Deja vu all over again? Or will a case of the recency effect fool investors and ultimately make 2012 look nothing like 2011?
I’m thinking a milder immediate decline and a typical seasonal rally until April or May. But this market is full of surprises, calamity is always lurking in the shadows, and (at least for me) constant adjustment seems to be the rule. At this time in 2011 I rode the liquidity wave and pretty much just stayed invested in materials until late March. I can’t summon up that same level of trust now, and the trade has changed, chips, information, biotech, a more diversified mix of things. Even homebuilders and banks are players. The last several years have been a boot camp in trading what the market gives you, that much is staying the same.
I think there is something structural about the equity markets over the last decade that says, “invest in Nov. — go away in May.” The bad news and chances for some kind of capitulation gathers steam in Aug, Sept then Oct. This is when the funds start to sell and often lots of folks. In Jan. many of us get bonus payouts, 401k matching funds and have money to invest pulling the market back up. I don’t think May is normally that bad. But June and July often don’t do all that well. December anticipates a good 1st quarter. I have not studied the stats that carefully. Maybe someone else has. You would need to study the median and not the average each month over the last couple of decades.
The S&P doesn’t remind me of last year…it reminds me of the EEM in 2008 racing ahead of everyone else as if it could decouple from the worlds problems only to fall harder and faster to catch up to the reality that it could not decouple.
Decoupling does not exist when either the EU China or the US are in economic decline. They all end up suffering when one, two or all three are sick.
A cynic would say that the markets are far less random than they used to be and that the patterns are becoming increasingly mechanistic which is what you would expect from a market dominated by algorithmic and behavioral heuristics trading.
It’s not by chance that charts are dominated by stock prices that congregate at even dollar amounts. I suspect much of the trading is being done by algos that aren’t especially sophisticated. Maybe they don’t need to be.
As long as central banks keep pumping liquidity and topping off their balance sheets, they remain the major variable in world markets and those markets will move mostly sideways now that the high has worn off, but with an upward bias. If central banks ever decide to stop the liquidity pump, the markets will drop like a stone. As Japan has discovered, once you go a certain distance down the zombie finance road, there is no turning back. The Fed and now the ECB are true believers in zombie finance. Capitalism without losses or failures; quite the innovation.
Barring something out of the blue, this will likely be a year of euphoria. Probably not a natural disaster or debt ceiling fiasco. Slightly improving economy, Euro bailouts, presidential election and an overall feel good attitude for the bulls should push the market up to 1400. If real economic growth occurs, it will be 1600 with complete euphoria kicking in. After 2012, all hell may break loose.
Trade the tape. The missing piece of the puzzle for the bears may be that despite the overbullish sentiment there is still cash left over to finance a rally. Normally bulls would be spent out. Normal has been in short supply.
The only reason why the market is at these levels is the desperate amount of monetary expansion that has been taking place, not to mention a global propaganda to convince everyone that the recovery is around the corner (again …), based on half baked, fully ‘cooked’, fundamentals.
The markets are still expensive on a long term cyclical basis and there is a lot of instability in the system. The typical intra-day trading patterns also show clearly that there is a big attempt to support these markets at all costs. One has to wonder what will happen when this house of cards begins to crumble.
The rest, including the Greek default tv show, is a distraction.
A 4% treasury would be a game changer. I really don’t know why longer term investors would buy in here. I suppose some people can’t make it on a 2% yield so they’re sort of being forced. That’s part of the plan, isn’ it?