|Written by GSCR Staff|
|Tuesday, 06 August 2013 22:39|
Maybe it is because I was born under the Libra astrological sign (not that I even follow that stuff), but I have always felt that there should be some sort of balance when approaching investments in the market. For example, one should approach stocks with both caution and optimism. If one is too cautious, he will miss opportunities. If one is too optimistic, he will take on too many unnecessary risks. For that matter, I don’t quite understand why it seems as if there are some market prognosticators out there that seem to be eternal bulls or eternal bears. Considering that by its inherent nature the stock market is a dynamic, ever-changing marketplace, a shift in one direction or another should be enough to sway an investor in one direction or the other for a specific period of time.
I bring this up now because while my premature “stock market will drop calls” in late June and early July proved inaccurate, I believe that the third time is the charm. The Fed’s monetary musings, the stock market, the recent employment figures, and seasonality are collectively telling all of us to take some money off of the table and sit on the sidelines for a little while.
For one thing, the fuel that has driven stocks higher has been spent. A flood of institutional funds fleeing bonds into stocks prompted a wave of higher equity prices for the end of the second quarter which carried over into July. In fact, TrimTabs just announced late Monday that a record $40B of inflows marched into equity funds--- primarily into ETFs, by the way. This is why the indices have roared and why the stock pickers in the market (myself included) have been left in their dust. Of course much of these inflows were retail dollars merely following the institutional funds.
Traditionally, given the seasonality, it is not common for major inflows to occur in August and September from the retail side due to the last stage of summer vacations and the back-to-school spending season. Moreover, during the last 2 weeks of August, Europe is on holiday and essentially shuts down. Thus, European dollars which have been steadily flowing across the pond may also be on holiday.
All of you market watchers can clearly see that the major indices, which have made new highs, are now tired. Earnings on a broad basis are only so-so and that has some investors spooked as the 2H13 period for earnings is expected to not just drive but sustain valuations. The employment figures over the past week have also been negative, despite their positive spin (based on a lower unemployment rate.) Some economists have lifted up the hood of the car that is the employment statistic and discovered that since 2009, 90% of the job creation has been for part-time jobs, rather than full-time. Moreover, even in 2013, 77% of the jobs created have still been part time and there were 10x as many waitresses and bartenders hired than people in the manufacturing sector, according to ZeroHedge.com.
This is not a real surprise, now that we have seen too many consumer stocks either miss expectations or guide lower, while a few have shined, in recent weeks. With so few full-time jobs created, of course consumer stocks would suffer. Since the consumer accounts for a substantial portion of the economy and we are in the middle of furloughs for hundreds of thousands of government workers as well, timing is not so hot for near term gains.
Frankly, all of these factors lead up to a consolidation phase with some declines in the market for possibly the balance of Q3 and early Q4. By then, valuations will be largely attractive and then the fun can begin anew.
Have a great day.
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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