By: Michael Vodicka
“The market is just flat out totally convinced that these guys will always be there to support the cause if things get bumpy. Because any pull back we’ve seen over the last few years has been a great chance to buy on a dip.”
The S&P 500 posted its biggest gain of the year on Friday, rallying 2.5% on news that European officials had agreed on steps to strengthen the union. It was a strong end to an otherwise weak quarter, with the S&P 500 off 3.3% in the last three months, but up 2.2% on the week and 8.3% on the year. June is now the best month of the year for the Dow Jones, up 3.9%.
It looks like stocks have taken a decidedly bullish turn. After falling sharply in May, the averages responded with a solid rebound in June. And there is one very good reason for that.
Everyone in the world is watching the Euro zone story on a minute-to-minute basis. And a lot of people have been really bearish, expecting the domino’s of insolvency to finally fall. But the fact of the matter is that when everyone is watching and calling for something to crash, it never does. What made the financial implosion of 2008 so incredibly shocking was that up until the minute that Lehman Brothers went under, no one in the world could have ever seen it happening.
But in this Euro case, there is nothing but eyeballs all day long. The politicians and central bankers are so far into this, that there is just no way they are going to let the market get unruly and just collapse on itself in a moment of panic.
Sure, maybe the players and the system itself are all technically insolvent, but has that certainly hasn’t killed he status quo.
The citizens of old-school Russia waited for that insolvent and corrupt regime to go under every day for 50 years. These things can go on a lot longer than anyone thinks. The people in control have too much invested to let the system fail.
Looking forward, I’m sure there’s going to be tons of volatility, but generally speaking what we’ve seen from the market is a basic floor in equity prices that is built upon the Euro zone and the Fed. The market is just flat out totally convinced that these guys will always be there to support the cause if things get bumpy. Because any pull back we’ve seen over the last few years has been a great chance to buy on a dip.
And besides that, earnings are inanely awesome and valuations look great. I look at hundreds of stocks a week and I’m shocked at how many great companies are trading at historic low valuations. From a stock perspective, there is a lot of value in the market and in individual names and sectors.
So for the time being the call has to be bullish. There are just a ton of things for the market to worry about but it has nerves of steel and just doesn’t seem to care.
Updates:
Crude just absolutely ripped on Friday, with Powershares Oil Fund (DBO) adding 9% on the day for a 6% gain on the week. That showed up in the energy stocks, with Cimarex Energy Co (XEC) up 12%. These energy stocks are still way down, but its a reminder of how the group can move in a bullish market.
The agriculture stocks were also quite strong, with Bunge Ltd (BG) up 6% on the week and Deere & Co (DE) up 7%.
And finally, out of technology, Apple, Inc. (AAPL) was up 2.6% on Friday but mostly flat on the week. On the chart, it looks like Apple is breaking out of its recent range between $570 and $585. The valuation on Apple still looks great here, so it could be a chance for anyone who wants in to take a swing.
That’s all for this week, but until next time, here is a good article discussing how different stock funds performed during the quarter. With risk off, large caps outperformed mid and small caps. No shocker there. Still some good stats in there though. Enjoy.
Global Woes Effect Quarterly Returns
Your Investment Partner,
Mike
