S&P500 dropping to 600 by spring 07

[nla]

First full day of spring today. S&P closed @ 1,435.04

[kewp]

Good example why it doesn’t pay to make these sorts of prognostications.

[(former)FormerSanDiegan]

It’s May 2. The S&P 500 is up another 3.5% since the first day of Spring.

It is time to prepare to “sell in May, then go away” ???

[hipmatt]

I don’t know, but I have to be honest, right now I’m getting killed with my rather bearish investments…

OIL, GOLD, foreign currencies, a bear market fund that I should have gotten out of months ago. The last 2 weeks have been tough. I will ride it out I think. At least I got out of RE at the right spot.
I really don’t see why the dow has been skyrocketing upwards.. there are still a lot of negative indicators out there. I will really be surprised if the 3rd quarter continues this well. I have a few insiders at prominent businesses that say it has been relatively dead the last few months. If this trend is larger, it will show up next earnings.

[lniles]

IMHO the stock market, like housing, is not priced by value but rather by emotion and speculation. As only 1 in 7 Americans believe the housing market will go down, they are also extremely optimistic about stocks which keeps them buying which keeps the price up. Especially now, with the prevalence of internet trading, any one can buy and sell with a mouse click, and most people are truly uninformed about stock fundamentals. When I visit a stock broker or financial investor who talks to me about fundamentals, I feel like he’s been in the dark for some time. Warren Buffet strategies don’t work in a world of Homer Simpson traders. It is clear from the last sell-off which was sparked by a little government intervention in China. You are right to be bearish, I’ve moved 80% of my investments into CDs and the remaining 20% I have in foreign stocks with few ties to the American market.

[paranoid]

My own analysis shows that:
Dow is going to 14000 and SP500 is going to 1600 before the end of the summer. It may continue to go up or turn around and go down after that.

So if you are shorting the market, be very careful, and have an exit strategy ready, because you can be VERY VERY wrong.

BTW: I have been bearish on Housing since 2005, and I convinced a friend to sell his house in 2005. But I have bought REIT last year and made some good money from it.
I don’t see any contradition between being bearish on housing, and being bullish on stock markets in Short and Intermediate Term.

It’s all about Expectation, and exceeding or falling short of that Expectation.

[an]

paranoid, I totally agree. The stock market is all about expectation. I’ve seen it many times where company A release exceptional earning, but fell short of expectation and it got hammered. While company B release horrible earning but beat expectation and it rallied. So, expectation is the key.

[Chris Scoreboard Johnston]

Chris Johnston

The fundamentals for the stock market that I watch are all very strong right now. I have stated this in here repeatedly for the last 2 months. For those that are bearish, I would re-examine those things that you evaluated in determining your position, and correlate them to 6 month stock price movements. What you will find I suspect, is very little correlation. If you find strong correlations than stay short.

Hint – Factory orders do not correlate to stock movements except “possibly” on a 5 minute chart. The dollar also has no short term correlation that I have ever been able to find. I will say what I have said before, too many people in here have too large of a gloom and doom view of things, and as a result miss good opportunities.

I would not suggest fighting this trend, and actually buying any pullbacks we get until July/August approximately. Things can always change, but at the moment all things I study point upward.

[surveyor]

gloom and doom

I will say what I have said before, too many people in here have too large of a gloom and doom view of things, and as a result miss good opportunities.

CAN I HEAR AN “AMEN” TO THAT! 🙂

Way too true.

[HereWeGo]

Chris-

Are you suspending the “Sell in May and go away” seasonal rule this year?

Simple rule here, folks:

International exposure, exports – GOOD

Housing exposure, few exports – BAD

[what_a_disasta]

it is actually very tempting to buy in on an index tracker fund today when I look at the pitiful gains to be had from ‘high’ interest accounts vs. the potential gains from such a fund. However, I have a feeling this rally is being hyped for suckers. Any day now there will be a reversal and people late to the party will be sorry, just like recent house buyers. I am not really a gambling man so I just stick with the slow and sure, no matter how tempting it is with the talk of 14/15k dow reverberating arouynd the internet. Maybe I will kick myself later at lost gains, but thats better than a ‘real’ loss to me.

[Anonymous]

I hear you ‘momentum guys.’ So far, you are right.

Did any of you foresee the pop of the NASDAQ bubble back in ’00? Or the fall of the S&P 500, then, too? Both were readily foreseen by looking at the fundamentals — prices relative to earnings. If you had looked, you would have seen it (I was a blind indexer, then; never again).

This one is trickier, as the P/E is not way out of whack as it was in ’00. But, earnings have clearly been moving south, quickly, for the S&P 500 as a whole. That, combined with a currently rich P/E of 18 makes the market risky.

At what point the market wakes up, I don’t know. It could be as late as August, as Chris says. I don’t need my money, now. So, I’m happy to sit patiently in my double inverse fund (down 18%, still!), because I’m not sure WHEN the cows are coming home. But, I know that they ARE coming home.

Scary chart:
http://www.financialsense.com/fsu/editorials/lamont/2007/0502.html

The bad news continues to come in: ugly April auto sales, hints that April retail sales will be ugly, too: http://www.rgemonitor.com/blog/roubini/192394.

The only risk that I see to my bear scenario is this: the Chinese and Japanese governments moving out of Treasuries and into the stock market: http://www.prudentbear.com/articles/show/2004

Luckily, it hasn’t happened (yet), by view of the TIC data: http://www.treas.gov/press/releases/hp353.htm

Should be a fun few months.

[davelj]

It’s a Buffett cliche, but in the short run the market’s a voting machine, in the long run it’s a weighing machine. Right now the market’s going up because it’s going up. I posted previously that we’d see bad news out of the following:

TXN
QCOM
INTC
AMD
RIMM
MOT
AMAT

All but QCOM reported disappointing earnings for Q1 and guided lower for the year. All of their stocks are up right now. Fortunately I’ve got no dog in the fight. Nevertheless, it just goes to show you how disconnected things can get from the mooring of value.

With the exception of late-1999/early-2000 this is as crazy as I’ve ever seen things in terms of valuations versus the fundamentals and sheer animal spirits. Something will give eventually.

Recall that the biggest, most violent move toward Nasdaq 5000 occurred in a very short period of time in early-2000. I feel like this is a similar blow-off.

An interesting observation: Between 1871 and 2003 the standard deviation of returns on the stock market was approximately 17.5% annually. The standard deviation of dividends – that is, the underlying cash paid to shareholders – was just 12.4% annually. So, the movements in the stock market have historically been over 40% more volatile than the underlying fundamentals. Eventually the prices mean revert but the process can take many years (think back to the late-90s).

Anyway, eventually this market’s going to tank, but whether it begins next month or next year is anybody’s guess. Right now, people just want to buy and that’s all that’s important.

[an]

There’s really no point in trying to go against the trend. We’ve been it twice in the last 10 years, psychology run the show, the the fundamental. People was calling bubble several years before the .com bust as well as this RE bust. So given that it always run a few more years past the point where price gets disconnect from fundamental, what make this time any different? Sure those stocks that davelj listed prove his point, but I can very list a different list of stocks like GOOG, MSFT, AAPL, QCOM, HERO, VLO, XOM, etc to prove that there are other companies who are making great profit, better than last year and better than expectation. I don’t see the point is fighting the trend. If you keep your eyes open and don’t let yourself get caught up and have an exit strategy, you can take advantage of the run up as well as the run down. It takes many years to finish a cycle and turn around, so it’s better to be follower of the up/down trend than trying to guess the top or bottom. With an exit strategy, you can lock in your profit when the market turn.

Also, remember that although tech crashed hard in the last crash, RE, GOLD, and OIL all rallied hard. I think that investment money have to go somewhere, they don’t just sit idle in CD. That’s just my theory, we’ll see if it’ll happen during the next down cycle.

[LA_Renter]

I am always leery of a market that goes up basically everyday and is obviously becoming disconnected from fundamentals. That does suggest this is a momentum play and IMO this is not exactly the perfect time to have that occur in the stock market. Why? I think the FED, many economist and Wall Street are really underestimating the housing slumps drag on GDP. The market is factoring in a .5% to 1% drag on GDP. As we get into the meat of the ARM resets and feel the full brunt of the housing downturn the drag will probably be over 2%. Reference the Credit Suisse Arm Reset schedule and you can see we have not experienced the worst of these loans. If the drag on GDP is greater than the .5% to 1% they are forecasting there will be an Uh Oh! moment on Wall Street and the market will correct.

Liquidity is driving the market right now. We are all talking about the weak US dollar, but we need to look at the YEN. The Yen is weaker than the dollar right now so the Carry Trades are charging ahead. The markets look crazy right now because there is too much money chasing too few assets. I do anticipate a stock market correction this year. When you got me.

[Author]

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