Multiple times this week the equity markets were accused of melting up by the media. In other words, there is no obvious explanation to the recent run up thus the lack of resistance is the only possible answer! Sometimes you have little buying pressure and markets melt down. The reverse can also be true. Indications are that professional money managers have a full allotment of cash and without visual negative news it is difficult for them to sell at this point. That is not a statement that should cause you to throw common sense in the wind and charge full ahead but it is worth noting.
Recently we have seen a fraud perhaps similar to that of Enron be discovered at Lehman Brothers – the now-failed but longtime 800-pound gorilla of the banking industry. We know elections are coming that aren’t going to be pretty. We know that at some point the stimulus spending has to stop and we have to stand on our own two feet. Structural economic damage seems imminent and head line monsters appear ready to attack every morning. All of this breeds confusion. Wall Street does not like confusion!
We all know the negative and even those of us that are bullish – believing the market can go higher from here – find countless reasons why things could get worse and fast. It appears that there is a huge attitude shift between retail investors and money managers and their psychology.
The fall of 2008 is in the rear view mirror by a good 18 months at this point. Numerous friends, family and even some of our friends at the firm look at me with eyes of confusion. “Joe, it is over — it is better now,” their eyes seem to say. Though it is possible, they are correct 2008 still has open wounds with a daily dash of salt for myself and many others. I have long argued that the crash of 2008 began in May of 2007 making the matters even more of an issue. Our bodies have been living in defensive mindset for almost three years and that makes anyone gun shy. As a result, in my opinion, more of Wall Street is bearish than the equity markets would indicate.
Bottom line markets move based on the amount of money flowing into them and out of them. There is a daily battle of buying pressure versus selling pressure. Right now the buying pressure is in control because there has been no visual evidence of economic displacement that would argue for professionals to raise more cash. It feels nice on the outside but be careful. The weather in Indiana can change quickly and so can the markets.
Joseph “Big Joe” Clark is a Certified Financial Planner and the managing partner of the Financial Enhancement Group, LLC. He is a registered principal offering securities and registered investment advisory services through World Equity Group, Inc, member FINRA/SIPC.
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Big Joe Clark: Market is melting up
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