MARKET MINUTE

The market just continues to plow higher.  What’s incredible about the current rally is that it’s not particularly disorderly.  Instead, the market has been moving in a sort of 3 steps forward, 1 step back sort of formation for 6 straight months.  The mentality that the Fed won’t let stocks decline has become pretty much universal.  Despite the underlying invulnerable feel to the market, it has not yet gotten out of control.

Stocks are up almost 1% again today on no real news.  It’s a sign that investors are eager to bid up stocks no matter what happens.  Goldman’s 1500 target on the S&P is the number that everyone appears to be keying these days.  Some recent trends:

• Earnings season has been fantastic.  This is likely the #1 reason why sell-offs will be fairly shallow.  The continuing strength of corporate America makes it very difficult to expect a protracted decline in equity prices.  My Expectation Ratio has stabilized around 1.3 so there doesn’t appear to be any real risk around this earnings season.  Analysts are still underestimating the strength of corporate America.  Given this, it’s very hard to be bearish in the long-term, however, the complacency in the near-term is palpable.

• Every Monday is a merger Monday now and tends to spark some equity excitement.  Where were the mergers when companies were 50% cheaper?

• The VIX is back below 16.  Does it even matter anymore?  All sentiment surveys and fear gauges have been broken for months.

• Remember Europe?  Yeah, me neither.  The markets appear to have more than absorbed any fears from Europe.  Without contagion to Spain it looks like th ECB has done enough to keep things together.  Yields and CDS spreads are mixed in recent months.  Portuguese yields are hitting new highs as we speak while Spain’s yields are just shy of their highs.  Bailout fever is firmly implanted in the minds of investors.  Selling when you know the Euro government’s will bail everyone out is a trick that people don’t appear to be falling for anymore.

• The recent weakness in the Shanghai market hasn’t done much to dampen bullish sentiment.  A 3.5% rally last week has some equity investors in China hoping that the worst of the recent declines are behind us.