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Business/Finance See other Business/Finance Articles Title: The Weirdest Rally of All Time? The Weirdest Rally of All Time? Mike Larson | Friday, March 18, 2016 at 4:22 pm I don’t know about you. But I think it’s fair to say this is one of the weirdest rallies of all time. This year started off as the worst ever for the 119-year-old Dow Jones Industrial Average. But in just 24 days, the Dow has retraced its entire 10%-plus decline. That’s the fastest stocks have ever gained back a drop of that magnitude. Then there’s the issue of where this bounce back is coming in the market cycle. Assuming you still believe this is a bull market, it’s roughly the second-longest in history. That means it would be remarkable (historically speaking) if this rally marked the start of a fresh leg up rather than just a bounce. Then there’s the issue of which sectors are leading and which are lagging. I’ve been arguing for a while that we’re very late in the economic and credit cycle. It’s a time when economically sensitive, lower-yielding, higher-risk assets lag … and non-economically levered, higher-yielding, lower-risk, and lower-volatility names shine. A strange start indeed to 2016 for the markets. Sure enough, Bloomberg points out that utilities and telecoms are leading by a wide margin so far this year. As a matter of fact, utilities are up a hefty 13% less than three months into the year. That’s the best performance relative to the broader market in any year going back to at least 1989. Or in other words, safe is sexy. That’s very similar to what we saw in the last two difficult market periods in 2007-09 and 2000-02. Finally, Treasury yields are up from their lows … but not by much. They remain far, far from their highs, with the 30-year yielding around 2.7% vs. 3.3% last summer before any of the commotion began. The U.S. dollar is also rolling over and threatening to break down from a 14-month consolidation/topping pattern. That’s not what you would expect to see if U.S. economic growth was strong and getting stronger, especially relative to the rest of the world. “In in other words, safe is sexy.” Bottom line: Many of the individual stocks and sectors I’ve named in my Safe Money Report outperformed in the selloff, and they’re continuing to do so in the rally. My hedges are obviously taking some heat. But considering the nature, character, and timing of this rally in the market and economic cycle, I’m extremely wary of jumping on board willy-nilly. It’s not like we didn’t see this exact same thing happen in September and October, either. The Dow surged 2,100 points back then, almost exactly how much it has rallied off the February low. That rally eventually fizzled out, and my indicators suggest this one is at risk of doing so too. Now, let me hear your thoughts. Is this another big bear market bounce? Or is it the start of a new bull run? Can you “trust” a rally that’s led by defensive, conservative stocks rather than riskier companies? What investment strategies are you using in this environment? Share your comments below when you get a minute. Poster Comment: It's a bounce. Get ready for the crash. Post Comment Private Reply Ignore Thread
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