So here we sit, the S&P has recently broken through the 1000 mark and even approach the 1007-1020 range - where there are serious amounts of resistence to going higher.
Then, China started to sell-off last week and this week. China has been a precurser or leading indicator to the state of affairs of the US market really. Consider that China bottomed out in late 2008 (about 12 weeks before the US appears to have bottomed). China's rally has been world renowned and now (due to the fact that domestic stimulus can only go so far and future fears of monetary restraint in China -- say it aint so, you can't take the bottle away from the baby at a time like this! even if the baby is a full-fledged adult, right?) China appears to have peaked. So does that mean the US markets will follow suit in September and October?
Meanwhile, housing has been elevated and "improving" for the past few months - according to sales data and less significant declines in year-over-year price comparisons. But prices aren't increasing and most importantly - its the entry level housing market that is contributing to such sales... these are the 8000 tax credit people which will disappear (unless Congress continues to prop up the housing sales recovery with an extension of the tax credit - or dare i say expansion?) starting .... now (well techincally November, but common, it takes 30-60 days to close on a house right?). Also consider that short sales and foreclosed houses continue to contribute strongly to home sales. So thats good for sales, but bad for sales prices. So housing has stabilized -- but its stabilized by strong sales of not great houses, primarily sales of entry level houses, and an expiring tax credit.
Also consider this --- after every recession, the markets come roaring back with a strong quarter before faltering a bit and then eventually panning out to a flatline level of growth while the fundamentals of the economy prep for the next bubbly run. That market roar-back is typically the result of businesses increasing their inventories back to pre-recession levels to meet pre-recession consumer demand. Good news = the recent market roar-back had nothing to do with business restocking inventory (although that makes the support behind the roar-back kind hollow and scary right?). Bad news = will consumer demand return to pre-recession days so quickly? begging (julia roberts in Pretty Woman style) the question: will businesses need to restock inventories in a significant way anytime soon?
I'm not sure they will -- the consumer is getting paid less, working less, finding less jobs, and has less equity in their homes. They owe more than before - and potentially more than they have access to. The consumer is hurt and will be for awhile. In the same way that Chinese consumers need to learn to spend SOME of their savings - live a little people. What goods is $100,000 in savings when you live in a dirt floor hut? Well, Americans are learning to save a little more - or a lot more - and get rid of enslaving debt. What good is a mahogany floor in a penthouse suite when you have to mortgage both kidneys for it?
More to ponder.... a liquidity driven stock market rally isn't fundamentally sound or stable. Just as quickly as people pour money into a rally for fear of missing the gains -- they'll pull it out when panic and visions of February 2009 emerge. Last thought: even if the recent rally was somewhat valid and if nearly all economists are projecting 1-2% growth for the next few years (as opposed to old days of 4%), does the stock market and such stagnant prospects seem appealing at this point anymore?
I continue to think that as China falls off and the reality of the US Consumer is revealed and corporations report minimal revenue growth in October (exposing previous gains to the result of one-time cost-cutting efforts), that the markets really have no catalyst for going up, esp through that 1007-1020 blockade on the S&P.
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