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Business/Finance See other Business/Finance Articles Title: Is Everything Awesome Again After the Latest Bounce? Is Everything Awesome Again After the Latest Bounce? Mike Larson | Monday, October 5, 2015 at 4:25 pm I don’t know if you saw The Lego Movie. But in the wake of Friday’s dismal jobs figures, it seems like stock traders were humming along to its “Everything is Awesome!!” theme song. I say that because while the news was terrible, the stock market reaction was great. After tanking around 260 points, the Dow Jones Industrial Average reversed and ran to the upside – closing up by around 200. That was the biggest reversal we’ve seen since Oct. 4, 2011. Stocks then surged another 300 points or so today, which does beg the question: “Is everything awesome again?” Well, the bull case seems to be that this is a carbon copy of fall 2011. That’s when we had just experienced a sharp drop in stocks caused by the debt-ceiling debacle. After chopping around throughout August and September, stocks bottomed out and did a moon-shot into November. A late-year pullback held at a higher high, and stocks were off to the races for the next three years. But I see a major flaw in that line of thinking. That 2011 correction didn’t stem from a fundamental, economic or credit market driver. It stemmed from a largely political standoff over the debt ceiling. So once the political standoff was resolved, stocks were free to resume their bull market run. The bull/bear debate rages on. That bounce back in the fall of 2011 also had the benefit of an easy-money tailwind, coupled with a total lack of disorder in credit or stock markets here and abroad. Conditions today are completely different. Stock, bond and currency markets are in turmoil worldwide, and investors are no longer “buying” central bank talk and action. They’re selling it. We also just got another weak report in the ISM Services index. It fell to 56.9 in September from 59 a month prior. That missed forecasts for 57.5. A sub-index that tracks new orders plunged by the largest in any month since November 2008, which was in the midst of a recession. So while I think you have to respect and acknowledge the short-term bounce, I don’t think it changes anything for the longer term. This still looks, smells and acts like a bear market. If anything, the move all but confirms we’re in one, considering huge, short-term, countertrend rallies are a calling card of every single bear market I’ve ever studied or traded through. So invest accordingly. “This still looks, smells and acts like a bear market.” What do you think, though? Is this the start of a significant year-end rally like in 2011? Or is it just another bear market bounce? Can we count on central bank talk or action to spur a big rebound like in 2011, or has that ship already sailed? Do you think the fundamentals are improving or worsening longer term, regardless of what happens in the very near term? Let me hear about it over at the Money and Markets website. Post Comment Private Reply Ignore Thread
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