Not as Bad as It Could Be
By John Markman
If we look back over the past three weeks of the market, the S&P 500 is down from the 1460 level that we hit the week of Sept. 15, and from the 1470 level that we hit in the first week of October, and from the 1475 level that we hit the day of the QE3 announcement. So we had a series of lower highs, and now we’ve experienced a set of lower lows. Typically that’s a pretty good indication that the market is turning down.
But is it really? We’re kind of on the edge. I’ll tell you why.
Although we do have lower highs and lower lows, right now the market is exactly where it was at the beginning of September — and in fact, it’s in the same place we were in the last two and a half weeks of August. If you think about that, it’s actually quite positive because October has featured some horrendous earnings reports from many large companies: Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Caterpillar (NYSE:CAT) and many more have reported earnings and revenues that were much lower than anticipated for the third quarter. And forward guidance has been terrible. Yet stocks are right where they were at the beginning of September? You would think stocks would be much lower, perhaps even 10% lower.
So what do we make of this? Investors are clearly disappointed with the results from the past quarter, but they’re trying to look through the trough that lies ahead in the fourth quarter — and toward a first quarter or first half of next year that could be a little brighter. So on that basis, exposure to the long side of the market continues to be prudent.