WHAT THE MARKET WANTS: May 2009
The Bear is Dead . . . Long Live the Bull?
(May 4, 2009 5:25 pm PST) Perhaps not. Many don't consider the birth of the bull until the S&P 500 index crosses its 200-day moving average, and that milestone is still a short distance away. So perhaps we have a baby bull and a very wounded bear, but keep in mind that this is one of the most ferocious bears in history. One swipe of his claw can knock a baby bull off his feet.
That said, April was a glorious month, with the market blooming almost every week. The Russell Midcap Value was up an awesome 19.1% for the month, and the Nasdaq was up 12.4%. Indeed, every index was up double-digits, except for the Dow, up 7.4%, and the S&P 500, barely missing two digits at 9.4%.
Similarly, the last three months show everybody in the black, led by Midcap Growth (+15.6%) and the Nasdaq (+16.3%). The majority of the sixmonth numbers are still in the red, as are the 12-months numbers. The year-to-date performance is mixed between positive and negative, but is led by Mid-cap Growth.
With regard to styles, over the past month value slightly outperformed growth in most caps, but still trails over the past quarter by fairly wide margins.
For the most part, corporate earnings have surprised to the positive for the first quarter. Especially surprising were a number of banks that significantly beat their numbers and posted fairly handsome levels of profit.
Leading indicators, in general, have been better than expected, while lagging indicators such as employment statistics remain in dismal territory.
We should still be wary of economic pitfalls because technically, we are still in a recession. There could be negative economic surprises from the upcoming bank stress tests results and from future problems related to consumer debt levels, including credit cards.
Nonetheless, the near-term outlook for the market remains positive as money continues to flow back into equities, and short-covering fuels strong rallies among previously weak stocks. It is interesting to note, however, that despite the strong market rally over the last three months, market valuations in general remain slightly below the bottom of the 1987 crash.
Growth metrics remain the clear favorite, but the market's rise has fueled more interest in reasonable valuations, as evidenced by the improving results of the value style over the past month. The prudent investor will carefully build his portfolio from among the strong valuations that remain available.
David Brown
Chief Market Strategist
Sabrient Systems, LLC
Next update: Second week in June.
