A NYT column last weekend asked: Have we already enjoyed the Year End Rally? Today’s action makes that query all the more relevant — especially in light of last week’s Dollar whackage:
Here’s the ubiquitous excerpt:
"THE stock market has had a great run over the last few months, but as the holiday season begins, some analysts are worrying that the traditional year-end rally on Wall Street may have already come and nearly gone.
Mary Ann Bartels, technical research analyst at Merrill Lynch, wondered in a note to investors whether the tendency for stocks to climb in the last couple of months of the year had been rescheduled this year for September and October.
“We think yes,” she wrote. She then acknowleged feeling torn between what her charts have told her and what the calendar and history have led her to expect.
“It is not our favored stance to be more toward the bear camp looking for a cyclical correction of 8 to 10 percent, but all of the market indicators suggest this is the more likely scenario over the coming weeks,” Ms. Bartels said. “What is surprising is that these readings are occurring at this time of year. Most years see a bullish year-end rally.”
She highlighted several exceptions that prove the rule, including three years in the 1990s when the Standard & Poor’s 500-stock index lost at least 6 percent at some point during the last two months of the year. What signs suggest that 2006 will play out as those three years — 1991, 1994 and 1996 — did?
Trading volume has shrunk, something that often precedes a price decline, she noted, and several sentiment indicators, including opinion surveys of investment advisers and measures of market volatility, show the sort of complacency that typically occurs near market tops.
Interesting stuff . . .
UPDATE: November 27, 2006 10:43am
CNBC’s Bob Pisani quotes several unnamed traders who have said that in light of the dollar drop, overseas investors are repatriating some cash, locking in their profits for the year, and eliminating additional currency risk . . .
This Party May End Before It Starts
CONRAD DE AENLLE
NYTimes, November 19, 2006
Fascinating interview With Richard Arvedlund, Founder, Cypress Capital Management, who is not particularly optimistic on the economy going forward:
WE CAN ALWAYS COUNT ON RICHARD ARVEDLUND to take a different tack. Independent and bold calls on the economy come easy to this longtime money manager, who’s seen it all in his 30-plus-year career. But his balanced investment approach, with a focus on high-yielding, big-cap stocks combined with some bets on bonds, helps his clients preserve their capital as much as build it. The founder of Wilmington, Del.-based Cypress Capital Management, which has $450 million in assets and is now a unit of WSFS Financial, is at his best in troubled times. Trouble, the way he sees it, is straight ahead.
Barron’s: It took a year, but the calls you made when we last spoke are looking pretty good now.
Arvedlund: Well, until midyear the economy was running much stronger than I had thought it would. However, a GDP [growth domestic product] slowdown has clearly begun. The GDP growth rate dropped to 1.6% in the third quarter from 2.6% in the prior quarter and 5.6% in the first quarter. We have not seen GDP growth below 2% for four or five years. We now have preconditions in place for a recession.
The preconditions would be the following: Whenever housing starts and permits drop by the rates of decline that have been exhibited — 10% to 20% — it has always preceded a recession. What is remarkably different in housing than just about any other sector of the economy is that whenever housing cycles turn down, and that’s happened twice in the last 30 years, once in the late ‘Seventies and once in the late ‘Eighties, the downturn tends to last much longer than people dream. The average cycle is three to four years.
Recession: The Stage Is Set
Interview With Richard Arvedlund, Founder, Cypress Capital Management
Barron’s, Monday, November 13, 2006