That's the title from an article in today's WSJ.
I've been having an extremely difficult time understanding this market. The market goes higher as the economy continues to slow down. There are a few explanations.
1.) Once the market establishes a trend, it tends to stay intact. The SPY and QQQQ have solid, uptrending rallies in place. For traders who simply look at screens, this says "buy". In other words, traders are ignoring economic fundamentals in favor of technical trading.
2.) The market is anticipating an economic turnaround later this year. There are some economists who are arguing the current slowdown is simply a pause in the economy and economic growth will return to 2%-3% later this year or earlier next year. Traders may be looking to the future in an attempt to get in the ground floor of another rally.
3.) While the market isn't cheap, it certainly isn't expensive. According to Barron's the Dow's P/E is 17.29 and the S&P's is 20.18. While this isn't cheap, we have sen far loftier valuations in the past.
4.) Corporate earnings have surprised this earnings season. However, let's add an important caveat to that statement. It's entirely likely that companies were aware of the earnings slowdown and therefore lowered their earnings guidance. At the same time, analysts may have grown more conservative in a slowing earnings environment, making their projections conservative. This means the earnings beating numbers were in fact fact beating a low-ball set of estimates.
5.) There are a ton of deals going on in the market right now. Traders may be buying shares in an attempt to anticipate the next big merger.
6.) Corporate stock buy-backs are providing upward buying pressure, or at least providing some type of buying floor to shares.
While I spend a fair amount of time on technical analysis, I am also a fan of having a solid fundamental backdrop to a chart. If the economic background isn't solid, then trading for an upward move is far riskier. And right now, the fundamentals just aren't as solid as I would personally like.
That's my take.
I'll add that I've been wrong before -- I thought Madonna would be a one hit wonder.
