I attended my wife’s 45-year high school reunion Saturday night. Smallest reunion we’ve been to (we both attended the same high school and both our graduating classes were large). Everyone seemed quite a bit older, moving slower and showing their age. But it wasn’t all negative… there was plenty of happy talk of retirement and grand kids, and those attending were in high spirits and seemed genuinely pleased to see those old faces and hear more about “the rest of the story.”
At the same time, according to the latest American Association of Individual Investors poll, only 22% of investors are happy (bullish). It’s easy to understand this pessimism. Friday’s market was certainly negative, with the Dow sinking 120 points. This morning, prior to the market opening, a 200-point down day looked possible.
The reason being given for the decline was that Spain and Italy were showing further signs of financial crisis. What we termed a temporary fix last month by the European Central Bank has turned out to be – surprise – not enough. And their problems are turning out to be bigger and more widespread than just the real estate and financial industries.
Of course, when the stock market goes down, except for 9/11-type days, it’s usually for a number of reasons. Earnings have been just OK for most companies (about 61% are beating expectations). While revenues (sales) have been dismal – the number of reports beating projections is down to just 44% –that’s 2008 levels. Finally, company guidance on future earnings has been more bad than good – again, the spread is at the 2008 level. 2008 is not a year that stock market investors want to hearken back to, so pessimism is understandable.
This lack of investor enthusiasm is evident in many ways in the technical underpinnings to today’s market. As prices rose during the June-July summer rally, our market breadth indicators failed to confirm the advance. Advance-decline lines, volume and small-cap indices all lagged far behind the popular indices as stock drove higher. This usually means weakness ahead in these same measures.
We had some very positive economic report numbers early last week, but the last four or five were weaker than expected. And at week’s end, the number of reports with weaker-than-expected results exceeded the better reports nine to five. By that time, building permits, unemployment claims, home sales, leading indicators and the Philadelphia Federal Reserve’s report on the economy all had come in weaker than expected.
With all of this economic negativity (including 8%-plus unemployment throughout his term, an almost quadrupling of the debt, and talk of another recession on many investors’ lips), you’d think the Obama’s would be making moving plans. But no, most of the polls the media report show the President leading by a few percentage points.
However, I would point out a little tip I learned from almost 50 years of poll watching in my other life as a political advisor. When the media starts reporting polling results in a Presidential race, they start with polls that are inclusive of everyone. About this time of the year they move on to polls of registered voters only. At the same time, however, all the political insiders care about are the few scattered polls that survey only “likely voters.” These have the best track record of calling the election, but the general public is not usually exposed to them until the last month or so of the election.
As you might guess, the broader, earlier polls normally have a Democrat bias. Democrats believe their party to be more inclusive and these earlier polls tend to bear this out, as more people self identify with that party and these early results favor their candidates. Yet, a higher percent of Republicans generally vote, so the “likely voter” tallies tend to favor that party more and the results have been closer to the final election totals.
Eight years ago the polls showed John Kerry with a 48.8% to 43.5% lead over President Bush. Of course, the final result was reversed.
Right now the average poll (in the 7/5-7/12 period) shows President Obama with a 1.2% lead over Mitt Romney. The registered voter polls have him up by 2% with a range of -1% to 6%. At the same time, the likely voter polls have Romney up 0.7% with a range of -1% to 3% in the latest poll with the biggest sample size of all the polls in the period.
Now, note all but one of these poll results is within its margin of error. And things can change quickly (the VP choice looms large for Mitt Romney, for example). Still, to add a new dimension to your 2012 election watching, make a point in the next three and a half months to watch for the “likely voter” polls – it’s always disclosed in the fine print.
I have to admit, the positives are few and far between right now. It does appear that the market today has weathered most of the storm, recovering from the big down opening but still closing down 100 points.
Interest rates are moving still lower with mortgages and bonds at record levels. This is normally positive for stocks in the intermediate term as they compare very favorably with bonds on a yield basis.
And …have you refinanced lately?
The dollar continues to move higher and inflation (other than in the farm commodities and a resurgent oil market) has been flat.
US stocks continue to outperform most of the world markets and large-cap US stocks have been the place to be. Even on the earnings front, the large caps are encouraging, as 76% of the S&P 500 companies have been beating analyst estimates this quarter. We continue to operate under a golden cross environment and prices remain above their best indicator of a positive trend – the 50-day moving average.
Last week’s Century Theater massacre saddens America’s hearts once again. The daughter of one of our Financial Advisors, Petra Anderson, was caught in the cross fire Thursday night. Hit in the arm and head, we hear her operation Friday afternoon was a success and that she is recovering. Our prayers are with the family and friends of those involved in this tragedy and most particularly for this very talented recent grad of the University of the Pacific and her loved ones.
http://www.pacific.edu/About-Pacific/Newsroom/2012/May-August-2012/Statement-on-Petra-Anderson.html
Donations to help: http://www.indiegogo.com/readytobelieve?c=home
So yes – it isn’t all negative, is it? … But, I understand … sometimes it sure feels that way.
All the best,
Jerry
