The popular press would have you believe that the rally on the start of the year's trading had something to do with the day's suspect economic data. However, we expect the move higher across US stocks has more to do with a sigh of relief following a holiday season and New Year's Eve passing without major terrorist attack, and the return of parked and protected capital.
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.
The Dow is driving higher by 0.9%, the S&P 500 Index is celebrating a gain of 1.1% and the Nasdaq is nearing 1.4% in trading near the close on the first day of the new year. Do you suppose the investment community is celebrating prospectively, and can foresee economic gains and stock market surge for the long-term? I suggest that is not the driver today, and instead hereby Christen this "The Sigh of Relief Rally of 2011."
The popular press quickly attributed the year's sizzling start to a month-over-month gain in manufacturing activity and better than expected construction spending. However, ISM's Manufacturing Index also missed the economists' consensus forecast, while construction spending was down from the prior month's result. In other words, the movement of the market and its tie to economic data is suspect. If stocks were down today, we suggest the same information would have been used to describe why. In fact, stocks started rising well ahead of the 10:00 AM data releases. The real reason for the day's stock market activity is a little less obvious, and we suggest perhaps completely overlooked.
While terrorism struck in Athens at the hands of hooligans born of a struggling citizenry; and after al-Qaeda gremlins sought to inspire chaos and religious conflict in Alexandria, Egypt on New Year's Eve; and despite the mitigated subway bombing in Rome, the US markets are today celebrating with a sigh of relief. Within the common subconscious of our community, we suggest there is a shared feeling that eventually something big and bad will happen somewhere important to us. Thus, we believe today's rally is at least possibly due to the fact that the big bang did not happen this year. Investors might even be contemplating that perhaps a safer world might be possible and that world peace can exist, but I doubt it. For now though, they are at least glad the American damage was limited to thus far unexplained events in Arkansas, where a few thousand birds and a hundred thousand fish mysteriously died suddenly.
New Year's Eve passed without a catastrophe, the ball fell purposefully in Times Square, and not a crystal was shattered. The Mummer's Parade in Philadelphia brought only the explosions of string band play and the fray of children. The rose parade was cliche', colored with flowers.
A bomb exploded killing many, but it was dropped by a robot on a foreign land far away, against the enemies of the state. In other words, whew! Nothing happened here. So, on Monday morning, the investors who had perhaps taken note of The Greek's suggestion to put cash aside and to hedge against the risk of terrorism, got it back to work again.
This implies that there is good enough reason to expect the rally to be short-lived, lasting only as long as it takes the parked capital to flow into securities. That does not mean stocks will not end higher on the year, but we suggest it means you cannot contemplate the future based on the day's action.
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