Playing a much less active position with respect to the market has allowed me to see aspects of the market that I normally would not pay attention to and also consider what I am seeing at my leisure. As a result, an observation has come out of this that I want to share with you.
Has anyone spent some time thinking what is different about this bull market run? There seems to be enough money pouring in to "float" a broad range of stocks, even though there are particular industries and stocks that are seeing above average action. This IMO is due to the inflow of money from funds. There is the speculative element there that helps run particular stocks up. When the money inflow from the funds drops waiting for a pullback of the market, this helps dampens speculative enthusiasm in the market and some short term profits are taken by the professionals. But there is one element, or quality, that is missing to this market. Even though the speculators out there appear to be pretty optamistic where high valuations and negative press does not appear to concern them, there is not that abundance of speculative activity that was in the previous market last year.
This lack of perceived overall speculative action can be due to a couple reasons that I can think of. One is that there are many still sitting the market out.
Another reason is the speculators are taking quick profits. So when they see a stock start to move up they jump on. Then they get out when the market starts to drop or after they can manage a profit. So in this way they are timing their entries and exits. This assumes above average intelligence from the speculator which I am not willing to concede to them. Or the speculative element of the market is participating in other places in the market that is not measured very well by the DJIA and even the S&P 500 indices.
Chris has mentioned the action he has seen in defensive issues and I think he has referred to the symptoms of the erosion of the tech leadership that I have commented on. Key tech stocks have been hitting weekly sell signals, if I am not mistaken. What is the indices on tech industries showing us? S&P 500 has been showing unusual strength in comparison to the other averages like NASDAQ and DJIA. There has been allot of fund money, both domestic and foreign, that continues to be available to move in to the market. This is stock appreciation through the outright force from the inflow of massive amounts of money. I see the market moves up with strength, and then spends a few days falling back with comparatively small profit taking. Sometimes it spends a few days churning where the market averages are not marketing any significant gains or losses. Then this cycle starts back up again. As this continues, this action helps bring back some speculative money to the techs which are under distribution by the funds. Meanwhile the funds appear to be looking for comparative value in other directions which can include some blue chip variety of stocks. I am sure the foreign funds are helping this out, along with the drop of the long bond below 6%. Even though I have seen signs of speculative exhuberance in the market, I think its quality has change. It does not seem as apparent to me as it was in the previous market run. There is also strong indications of not pessamism but caution. I think this is the result of the fund money focus on buying into market selloffs.
Has anyone else noticed differences with this bull run of the market? What have you noticed to be different? The types of stocks that are being played: mid to low cap issues for example? More selective appreciation of stocks? Also, where is that "irrational exhuberance" that Greenspan spoke of? The market is not the same without a large dose of irrational exhuberance! ;)
Just some thoughts that have been occupying my mind lately.
Bob Graham |
