Article
Author(s):
Given the declining economic and earnings data from the first half of 2012, stocks should be heading lower. And yet, they've bounced back instead.
This article was originally published by Zacks.com.
Anybody who truly measured and weighed the economic and earnings data of the first half must surely see both in continued decline. And therefore, stocks should be heading lower as corporate revenues and profits are seen peaking and the economy nears stall speed.
Yet, stocks bounced back from their 10% correction with vigor in June and July. Every euro-mess scare that produced a week of selling was met with steady buyers and higher lows on the S&P 500. And last week, the bulls solidified their case by moving strongly through the 1360 to 1390 resistance zone and staking their claim on a probable journey above 1400 to this year's highs.
So what's going on?
Are portfolio managers now indifferent to the macro fundamentals — slow-motion train wreck of the eurozone, weak domestic economy, slowing revenue growth — and looking out three or four quarters to better times?
How much of an effect is the election cycle?
How likely is it that the U.S. economy does a "touch-n-go" near stall speed and then picks up into Q4?
Is something dramatic about to happen in Europe where the European Central Bank is allowed to take a big step to backstop the eurozone?
The U.S. economy is amazingly resilient and has proven this since the Great Recession. I tend to believe that our innovation and growth engines can overcome the lingering effects of the credit bubble.
But a lot of not-so-optimistic economists convinced me we were headed at least close to a recession — and that would mean lower stock prices now as those worries got priced in. Probably even new lows near 1250 for the S&P.
Yet, the stock market seems to have priced-in lots of bad news and moved beyond.
So, until proven otherwise, portfolio managers appear to see a glass half-full economy and instead of a resumption of the spring correction into the autumn, the S&P will probably range trade between 1350 and 1420 into October.
This is slowly becoming my view. Obviously, the price action at new highs above 1425 could change the game and put 1475 back in view very quickly.
What do you think? Is the worst over and have we seen the lows for the year?
Kevin Cook is a Senior Stock Strategist for
The information supplied above by Zacks Investment Research Inc. contains opinions based on factual research which may or may not be accurate. Neither Zacks or Intellisphere will assume any liability for losses from investment decisions based on this information.