Ramblings of a Portfolio Manager
Sell in May and go away? It didn’t start that way. Now it’s Monday and for only the third time this year the market didn’t sway in a big way. Oi Vey!
Poetic though it may be, this speaks volumes about current market sentiment. We’ve had a 30%+ rally in the major stock market indices, earnings season is winding down, while over the weekend Barron’s resumed it’s usual negative tone, Warren Buffet gave a dour assessment of the US economy, and new cases of N1H1—the new PC (Pig Code) for Swine Flu—emerged in Norway and Italy. Still the market is reluctant to sell off. It seems just about everyone, from technicians to big mutual fund managers to cab drivers and Westport, CT doctors, is expecting a significant pullback in the markets, which suggests that it is likely not to happen, at least when everyone is expecting it.
To some all this may seem surreal but we are reminded that one of the first rules we learn as investors is that markets are discounting mechanisms. In November and March they were discounting a depression. Now they are discounting something less. It’s only natural, then, that they should be higher than they were when sentiment was about as low as it could go. Markets don’t just fall because they have gone up a lot, just as they don’t go up because they have fallen a lot. Where the markets go from here should and will be dictated by the economic outlook that investors see ahead, not the stock prices they see behind them.
What is surreal to us is that all of a sudden an Italian industrial concern (Fiat) is seen as a model of efficiency and business acumen; a model that can help fix the ailing US auto industry. “Fix It Again Tony!” That was the cry of the Italian automobile owner of the 70’s and 80’s. Let’s hope the cry of the 10’s isn’t “Fix It Again Tim,” as in Geithner, for this new market sentiment is based, in large part, on the assumption that the problems of the major US banks are in the rear view mirror, whether that mirror be made in Detroit or Milano…
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