A wise man once said that the destination we arrive at pales in comparison to the path we take to get there. While he may have been talking about life, the same can be said for financial markets.
As the big-picture crosscurrents continue to swirl — the stateside debt ceiling, the potential for another round of government stimuli, the sovereign credit crisis, social strife in the Middle East (and the implications for energy prices), concerns about Chinese growth — corporate America has painted the tape with earnings, earnings and more earnings.
On Wall Street, there are four primary metrics with which to weigh the tape. They are, in order of perceived importance:
It’s not what is that matters for the market — it’s what’s perceived to be. With politicians and policymakers in the populist crosshairs, and the imbalances that caused the financial crisis cumulative still, the masses are huddling and tempers are short. Social mood should have improved given the rally off the March 2009 low, and while it has for some, the seeds of discontent continue to be sown.
This encapsulates the level of interest rates (likely headed higher), perceived solutions emanating from the political posturing (stateside and abroad), and items such as the U.S dollar (the world reserve currency, which serves as the measuring stick for asset classes). The dollar and assets classes can both decline, but they likely won’t rally together. The next leg for the greenback will have global implications.
This week, we got updates from a slew of market leaders, with some good (Apple), some bad (Yahoo) and some ugly (Goldman). The individual stock price action and sector rotation we’ve witnessed is bullish in the aggregate (as opposed to the monolithic movements we saw a few years ago) as liquidity continues to slosh around, looking for a home.
The stock market has traded sideways between S&P 1,250-1,350 for the better part of 2011. While the big-picture risks remain, the bulls will argue that this action worked off the overbought condition (created by the rally off the March 2009 low) as a function of time rather than price — and they’re right. This is a context rather than a catalyst, but it warrants respect nonetheless.
Todd Harrison is the author of “The Other Side of Wall Street” and the founder and CEO of Minyanville, an Emmy Award-winning financial media platform. Read him daily at www.minyanville.com.