Manley on the Street

“Too much of a good thing can be wonderful.” —Mae West

Late last week, the European Central Bank (ECB) surprised investors with the announcement of a multifaceted economic stimulus plan designed to aggressively combat economic torpor on the continent. Then the American stock market surprised everyone. In the morning, it surprised the bears by rising sharply in response to the news. Then it surprised the bulls by falling sharply in response to the same news. Then it surprised them both by closing essentially unchanged. Everyone got to be right; everyone got to be wrong.

S&P 500 Index recovery after 1953 correction

China’s stock market collapse has me thinking of golf, mainly because most investors would like to take a mulligan on this year. A mulligan is an extra stroke allowed after a poor shot. I don’t golf, and it’s probably safer that way. My first excursion included me hitting a friend in the back of the head with a ball as I teed off. The odd thing is, he was standing behind a tree where he thought he was safely out of harm’s way. Thankfully, he was OK, as the ball didn’t have a lot of momentum because it had ricocheted off a couple of trees before striking him.

That’s the way this year feels. You can have a nice strategic allocation, thinking your portfolio is safely lined up with your long-term financial goals, and then BAM, Brian tees off and hits you in the back of the head. Well, in this case, it’s not me, it’s China’s market volatility, which has spilled all over the global stage. Oil falls, Treasury yields drop, and stock markets get dragged down.

Manley on the Street

“If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts he shall end in certainties.”—Francis Bacon

In the last two weeks, a strong rally has turned a few technicians on their heads. The oscillators have oscillated, and some indicators have gone from indicating a much lower equity market to indicating a higher one. We have seen a reversal, a potential double bottom, higher lows, and higher highs. It’s the stuff that bullish dreams are made of.

On the other hand, some of the fundamentals seem to have weakened. Forward consensus earnings expectations have slipped slightly, and recently-released economic data have indicated that the strong dollar and weak international economies have begun to adversely affect our economy. Both manufacturing and employment data seem to imply slower growth. Why should stocks rise in the face of this information?