Friday, August 1, 2014

The DOW Turns Red On The Year

After a strong GDP report earlier in the week and a strong payrolls report this morning, the DOW found itself in the red on the year after the market closed yesterday (and is down today as I write this).


Why?

Markets historically peak during periods of positive economic data and bottom during periods of poor economic data (remember how horrible the economic data was in March 2009?). The stock market is a forward looking measurement of where investors believe the economy (and earnings) will be in the future. A peaking process usually occurs when economic data is still strong, but marginally weakening.

Investors today are looking forward into a world where the Fed is backing away from QE and discussing the possibility of raising interest rates. This will arrive during a very fragile recovery in employment and GDP growth.

Or, the market is turning down because it is extremely expensive and has been rallying relentlessly for over 5 straight years. The market is now more expensive than the price to earnings peak in 2007 when economic data, GDP prints, and employment reports were forecasting blue skies ahead. See Flashback To December, 2007: What Was The Outlook For U.S. Stock Prices?

Or, this is just another brief moment when the U.S. market is catching its breath before blasting off again to higher levels of overvaluation and danger.

While the U.S. market decline will make the headlines this week, my focus continues to be on the agriculture grains (specifically wheat and corn), which have been annihilated through the first seven months of the year (see chart below). I discussed agriculture last week in Corn & Wheat Prices Destroyed: Buying Opportunity?




No comments:

Post a Comment