I found a great counter-argument to the market's assumption that the stock market is still healthy. I, personally, am having difficulty assuming the markets will rally between November and April (on seasonal strength). The current smoke screen investors are facing is the 700B bailout making its way through congress.
Let's look at the figures to see beyond today's headlines.
In the U.S. for August, 2008:
- Durable goods orders declined 4.5% .. Source: @ http://www.census.gov/indicator/www/m3/adv/pdf/durgd.pdf
- Fresh claims for unemployment benefits jumped sharply to 493,000 (it last reached the 500,000 mark in September 2001)
- Even after adjusting 50,000 jobless claims (hurricane Ike), the 4-week average of 443,000 claims was last reached November, 2001
- new home sales plunged by 11.5 percent in August, (1 percent dip that had been expected). Annual seasonally adjusted annual sales rate of 460,000 is the slowest pace since January 1991
- The average price of a new home fell in August by 11.8 percent to $263,900, the biggest one-month drop on record
- The median home price was down 5.5 percent to $221,900.
It remains clear that although I believe by sentiment that the markets will stabilize or even rally, the fundamentals are not there yet for a sustained rally.
I am really torn as an investor and as an analyst: the market is more ripe for short-term trading than for value investors who like to buy and hold. It is for this reason that one might find my notes contradictory from one entry to the next.
The market simply needs to hope that the government bailout action will at the very least restore liquidity in the debt markets in the face of declining employment, lower home prices, and higher commodity prices.