Deceptively Narrow Rally in Bigcaps and Fed Hope
Lowry's writes: “The rally in big-caps has been deceptively narrow. As of Thursday's close, with the DJ Average within just a few points of a new all-time high, none of the 30 components rose to new all-time highs. Further, 63.3% of the components showed losses of -20% or more from their individual all-time highs, and 43.3% showed losses of -40% or more. As of Thursday's close, 5.7% of domestic common stocks rose to new 52-week highs, while 26.7% already show losses of -20% or more. A concern for the future is that this degree of selectivity has typically been found near major market tops.”
John Hussman further writes: "Of all the hopes that investors have at present, the strongest ones are centered on the Federal Reserve and its probable decisions regarding the Federal Funds rate. This obsession with the Fed comes at the expense of attention that should be focused on profit margins, normalized valuations, market internals, credit spreads, fiscal policy and the U.S. current account. In hopes of refocusing attention on factors that matter, my hope is that the following bit will further explain why the Fed is, in my view, irrelevant.
"I should note at the outset that yes, as long as investors believe the Fed matters, it is important to consider the Fed. The real issue, however, is whether the Fed actually has any impact, and my argument is that it does not. It's an argument that goes against what we're conditioned to take for granted (and even what I once used to teach my own economics students). Nonetheless, the evidence against an effective Fed, when you scrutinize the data, is fairly compelling."
I recommend you read Dr. Hussman's analysis (he publishes every Monday at http://www.hussmanfunds.com/). I remain very cautious and largely out of the market with the exception of some HSGFX (Hussman Strategic Growth Fund), a tiny exposure to international funds (American Funds), and a short on oil and coal (uncovered calls written almost to the day at the recent peak of the oil market).
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