It’s Not About The Earnings

It’s been interesting the past few days to watch the earnings released.  Last quarter, the consensus was that the earnings were all about cost cutting and no revenue growth.  Everyone was worried, yet the stock market continued to rally.  The S&P 500 is up about 15% or so since last quarter’s earnings season.  Now, the earnings are supposedly great with top line growth and yet the stock market isn’t rocketing higher.

It’s not about the earnings.  The rally has been based on a global economic recovery with unprecedented simultaneous global stimulus.  Nobody knows how strong the recovery can actually be because we’ve never seen this type of stimulus and government spending before by so many nations.  That will all end at some point and the U.S. economy will have very mediocre growth, but not yet.

As far as the equity markets, I don’t suspect there will be a major selloff anytime soon because there is simply not enough supply.  Investors aren’t willing to sell aggressively at these levels and when there are dips, there are plenty of buyers who are still being converted from cash to stocks.  A sell off of up to 10% can happen at any time for any reason and I don’t see why we wouldn’t have a correction soon.  But, I believe over the next few months we will see higher prices for equities.  Instead of a major sell off, one possibility is simply a rotation of sectors like technology & financials and into areas like agri-business, utilities, & energy.  I’ve been taking some profits in the past few days as we know markets can be irrational.  A quick violent sell off would cause me to invest every spare penny in equities.  In addition, a weak sell off where the “overbought” condition works itself off would also cause me to invest more heavily.  For now, I’m monitoring all my positions very closely.


I’ll be on CNBC Asia tonight at 6:10 p.m. CST and Bloomberg Television tomorrow morning at 8:10 a.m. CST.  Make sure you tune in.

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