At the end of last year, CNNMoney took a survey (Stocks ‘need to be corrected’) wherein they polled more than 30 investment strategists and money managers as to where the S&P 500 would finish 2013. The realistic consensus was a valuation of 1,490, up just 4.5 percent for the year, given the multiple headwinds of debt, Europe, tensions in the Middle East, slowing GDP, and the pending implementation of ObamaCare at year end.
That was the last week of last year. Today, the S&P 500 is already up 6.8 percent year-to-date, and while some are celebrating the reacquisition of former highs, many are doubting the sustainability of the rally. First, it’s a tame one at best: Since 2009 investors have withdrawn over $150 billion from stock mutual funds, whereas this rally has seen only $10.3 billion buy back in.
So what is behind this rally? Many have been asking this question and the brokerage-employed “economists” on Wall Street are ready with a Happy Days Are Here Again answer, replete with rainbows and lollipops and the usual optimistic spin. Professionally, I believe the following to be legitimate reasons for what has transpired thus far:
Given the chatter online about a correction, few now doubt that we are in for a pullback. The only questions are when—and by how much. Here are the worrisome signs:
As many of our readers, clients, and listeners know, none of our more than 600 clients have lost money in that tumultuous 13-year period. Paul Farrell of MarketWatch reminds us that,
“…During the last 50 years, we have had 12 bull markets and 11 bear markets. The bull markets averaged (gains of) about 100 percent and the bear markets, on the average, declined 25 percent to 30 percent, and the typical bull market lasted 3.75 years. …Get it? This aging bull is now way past retirement age, ripe for a lengthy bear…” (my emphasis).
Farrel continues: “…More likely, (investors will be lured) into a suckers rally, where the bulls just keep hyping the good times so every naive investor left will finally pile in, fearful they’re missing the race to 17,000 … forgetting the dot-com disaster in 2000, forgetting the huge losses after the subprime mortgage disaster of 2008…” Many are beginning to believe that this market has nowhere to go but down.
Breathe easy, don’t get suckered, and spread the word.
Thomas K. Brueckner
President & Chief Executive Officer