A Party Until Xmas?

  • November 8, 2004
  • Peter Navarro

11/7/2004

The Big Picture Investor: Knock Yourself Out

 

Navarro’s Broad Market Outlook: A Party Until Xmas?

            The market’s
day-after reaction to the Bush victory gave us an excellent view of the
future.   While the stock market rallied big, bond yields rose, the dollar
weakened, and the probability that the Fed will continue to raise the Fed Funds
rate apace moved to near certainty.   In the short run, the stock market’s rally
should continue.  Over time, however, rising interest rates on both the short
and long end of the curve will become problematic for the stock market.  If
foreign investors expect the dollar to continue weakening, they will move their
yuan, yen, euros, and pesos elsewhere, which is both undermine the stock market
and accelerate the rise in interest rates.  May hay while the sun shines but be
ready for the rainy day.

Aloyan’s Technical Take: Not So Fast!

           

For
the week, all three major indices finished strongly in the green:  the Dow
closed up 360 points (3.59%) at 10388, the S&P 500 was up 36 points (3.18%) at
1166, and the Nasadq closed up 64 points (3.24%) at 2039.  I told you last week
would be pivotal, as all three major indices (The “Dow”, S&P 500, and Nasdaq
Composite) broke through their 2004 downtrend resistance lines and broke out of
their downtrending consolidation channels.  Volume picked up, and my momentum
indicators remain positive.  However, we remain “overbought” and my economic and
sentiment indicators remain bearish.  Last week’s broad sector breadth reading
was 100% on the upside, with 42% of them hitting historic highs!  We are in the
seasonally best time of the year for market performance, backed by an election
year that, since 1952, has produced a 13.37% average annual total return for the
S&P 500 (which after the last couple of week’s upward price action plus
dividends, puts us about half-way there for 2004). 


So why do I caution, “not so fast?” 
Because, as I had stated last week, this is a market of emotions, not logic! 
From their presidential vote to their investment decision, people have decided
to kick over the caution signs and put the pedal-to-the-metal down the road to
nowhere!  The economy is still in a down turn, and the earnings announcements
(particularly guidance) are less than stellar.  Consumer (and Government)
spending continues to outpace their income growth, as debt continues to
swell—