Bull Market in Bear Market Books

Here’s an excellent post on what we fear the most is least likely to happen.  During the internet boom of late 1990’s, we saw books entitled “Dow 36,000” and “The Roaring 2000’s”.  The author of the latter book recently published his latest work, called “The Great Depression Ahead”.  The library of current doomsday scenario book is extensive. I am sure they sell well, but is the world really coming to an end… again?  I don’t think so.

Where Do We Go from Here?

From March to May of this year, stock market gained nearly 35%.  Indeed, we are seeing more evidence of stabilization of economy and it appears that consensus among economists is for recession to end later this year.  However, it looks like that the market has already discounted the predicted weak economic recovery.

So where do we go from here?  Again, no one on this planet, yours truly included, has an ability to predict future market moves.  Having said that, we could be in for a period of consolidation and sideways movement in the market, until we see more evidence on economy progress (or lack thereof).  The key is to be invested in high quality companies that are able to weather the recession better than competition and will emerge stronger when the recovery finally arrives.

Volatility Measure Lowest in 8 Months

VIX, a measure of future expectation of market volatility, dropped below 30 a few days ago for the first time in 8 months and since the collapse of Lehman Brothers.  VIX, also known as “fear gauge” was over 80 late last year.  If often moves inversely to benchmark market indices.

While some may argue that lower VIX demonstrates investors’ complacency, it is encouraging to see yet another indicator to return to normal levels.  VIX traded in the range of 20 to 30 during 1998-2002 and then 10 to 20 in 2003-2007 prior to the start of the financial crisis.

Worst Crash Implies Best Recovery

Here’s a link to an interesting article that takes a historic view of major bear market and subsequent recoveries.  Make sure to take a look at the money market funds as a percentage of S&P 500 chart.  Note that the rally of the last two months only used up about one sixth of cash sitting on the sidelines.

More Earnings

As the earnings season draws to a close, more companies reported their earnings the last few days.  Among the companies that I follow, Nvidia (NVDA), Activision (ATVI), Marvel Entertainment (MVL), Akamai (AKAM), Buffalo Wild Wings (BWLD) beat expectations, while Garmin (GRMN) and Blackboard (BBBB) fell short.

Overall, this earnings season turns out to be significantly tamer than many feared.