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We thought for something a little different we would post our weekly commentary as seen in our Trade Focus publication.
We wish everyone a very healthy, happy and safe New Year. You guys are the best!!
It is the end of the year and the financial news networks have been asking the many and varied analysts they bring on their programs what they expect and predict for the stock market in 2010. What has stuck out to us is two things. Nearly all are stating they are bullish for next year. Many of those we heard, and this really stood out to us, said they expect 2010 to be just like 2009. First of all what does this actually mean? Does it mean it starts out with a big sell-off or correction lasting to early March followed by a big rally for the remainder of the year? Or does it mean that the “cyclical bull” or “bear market rally”, depending on one’s preference, marked by the March 6, 2009 low continues throughout the course of 2010?
Our response is that we doubt that 2010 will be a repeat of 2009. And that applies to either of the scenarios described above. For one thing it is just too easy to say. Furthermore we find it difficult to believe and accept that the market ends 2010 with another 25 percent gain basis the S&P 500 and 20 per cent or so in the Dow Jones. It’s great to be optimistic but the expectation is simply unrealistic to us.
The caveat that many of the talk show analysts offer is geo political citing Iran and now also Yemen. Yes this is something that can be a factor. Sans that, however, we would offer that at some point during the course of 2010 we will be hearing more and more about the global deficit crisis. We have already gotten a taste of it with the problems in some of the European states. Greece, Ireland and some of the Baltics. Here in the U.S. We have quite a few states of our own whose individual deficit issues are equal to or larger than those of the problematic European countries. And then there is the growing deficit of the United States of America with shrinking tax revenues, high unemployment and mortgage foreclosures to contend with. If the government pursues a course of more taxation such as cap and trade for example and or the additional “taxes” pegged to a Health Care Bill, if passed, will this solve the shrinking tax revenue problem or ultimately accelerate its decline? Can the American consumer return to the consumption level that prevailed prior to the credit crush of 2008? We just don’t see this anytime too soon.
Stock prices are said to trade on perceived expectations of earnings. What will need to be resolved is how and what will effect this perception. Following the gain that 2009 is ending with compared to where 2008 ended, we believe it difficult to expect that there will be a perception that earnings maintain the respective percentage clips of U.S. stock indices seen in 2009.
However, as Yogi was wont to say, “It ain’t over til it’s over.” 2009 ends with what looks to be respectable breakouts to the upside. Prices continue to trend in the direction of the lower left to the upper right on the chart. (We thank Dennis Gartman of The Gartman Letter and CNBC for this beautifully appropriate description). Until the trend is disrupted it is likely wise to stay with the trend. We might suggest here that unless, for example, the cash S&P 500 closes appreciably below 108000 and the Dow beneath 10,150.00 that S&P may see 122500 and the Dow 11,250.00 but S&P to140500 and Dow at 12,650.00 we are much less willing to predict.
As politically incorrect as it may be we say God Bless You All and wish everyone great trading success in the New Year.
Good trading to all
Jeff
CB&S
