By: Michael Vodicka
“Gold is being crushed. Oil had one of its worst weeks in months. Bond yields just hit a new all-time low. The economic data is awful. And through it all, stocks keep rising.”
It was another great week for stocks, with the S&P 500 adding 2.3% and hitting a new all-time high.
This year continues to defy all odds. In spite of a string of big economic missses, stocks just keep charging higher. Let’s take a closer look at the main data releases in the last two weeks.
- Market PMI-Miss
- ISM Manufacturing-Miss
- ISM Manufacturing-Miss
- ISM New York-Miss
- Vehicle Sales-Miss
- ADP Employment-Miss
- ISM Services-Miss
- Challenger Job Cuts-Miss
- Initial Claims-Miss
- Non-Farm Payrolls-Miss
- Hourly Earnings-Miss
- Wholesale Inventories-Miss
- Import Prices-Miss
- Retail Sales-Miss
- Producer Price Index-Miss
- U Mich Consumer Confidence-Miss
- Business Inventories-Miss
On top of the bad data, or probably driving it, is the mess in Europe that only continues to grow, where the European Union is now raiding uninsured deposits in Cyprus to fuel its debt binge. EU politicians have made it clear this is a template for other battered countries like Spain and Italy. And that’s not good.
Earnings also kicked off this week in fairly unimpressive fashion. Overall, earnings are still great and the private sector is quite strong, but Wall Street feeds off earnings growth, and after four years of huge gains earnings are at the very top of a multi-year cycle.
Federal Express (NYSE: FDX), a bellwether on the strength of the economy, missed expectations and warned of weakness in demand. Oracle Corp (NASDAQ: ORCL), another big bellwether tech company also reported a soft quarter. The big banks banks such as JP Morgan (NYSE: JPM) and Wells Fargo Corp (NYSE: WFC), also important economic indicators, looked good in the headlines, but a lot of those gains in earnings came from releasing loss reserves as opposed to being driven by revenue growth.
Every other market is seriously worried about the weal economic data.
Gold is being crushed, falling 5% on Friday alone and back to its lowest level in 2 years. Oil had one of its worst weeks in months. Bond yields just hit a new all-time low, with the 10-year yield falling to 1.7%.
But stocks are in a world all their own. In spite of all the negative data, the S&P 500 just keeps chugging higher. Take a look at the huge disconnect between the S&P 500 and the economic data in this great chart from Zerohedge.
Chart From Zerohedge-Click for Expanded View
This huge disconnect between weak economic data and the recent high in the S&P 500 have investors struggling with how to send cash into the market. That’s definitely a tough call right now, but big picture, if you’re worried about weakness in stocks just take you time and create a deployment schedule over the rest of the year, sending blocks of cash into the market every month. Because at this point, this rally definitely looks extended based upon both technicals and fundamentals.
Looking forward, we’re moving into “Sell in May and Go Away” territory. I hear this strategy get talked about a lot on the Street so I decided to take a deeper look and see if it has a history of working. Here is a good report on the results of the strategy with data tracked back to 1881. Enjoy.
Busting the Sell in May and Go Away Theory
Your Investment Partner,
Mike
