Is the Bull Market Over?

This is the headline that appeared today on CNN Money.  Putting on my contrarian hat, I actually like seeing headlines like this, as they are more likely to appear near market bottoms.  So what happened?  Despite the fact that the debt ceiling deal was passed, an expected market relief rally didn’t take place.  Instead, investors focused on deteriorating economic conditions, and kept selling for eight straight days, bringing S&P 500 down for the year.  Here are some of the recent statistics that illustrates weakening economy:

– Second quarter GDP growth was estimated at 1.3%, while first quarter was revised to 0.4%, forcing many economists to revise down growth projections for the rest of the year;

– Durable goods orders fell 2.1%;

– Manufacturing activity was weaker than expected.

However, there were some pieces of good news that went unnoticed during the selloff.  Consumer confidence rose in July to a better than expected reading, and, more importantly, first-time unemployment claims declined to 398,000.  The 400,000 is considered an important threshold for job creation.  We will see if Friday payroll report confirms this trend.

Meanwhile, the second quarter earnings season is drawing to the end, and similarly to many previous quarters, the results are quite good.  This time, both earnings and revenues rose by over 13% compared to one year ago, due, among other things, to weak U.S. dollar and stock buybacks.  I would like to point out that while markets will certainly fluctuate, long-term performance is driven only by corporate profits, not politics or economic reports!  So far, there haven’t been any hiccups on the earnings front.

It has been my long-standing belief that it is futile to worry about overall direction of the economy, as no one, including President Obama or Fed Chairman Ben Bernanke, can predict it.  I certainly can’t.  Instead, it is far more productive to concentrate on the stocks in my portfolio.  I don’t know the answer to the subject of this letter, but there is always a bull market somewhere.

On a separate note, please take a look at a series of four postings regarding portfolio performance on my blog.  The links are below:

Benchmarking

Taxes

Measurement

Option Strategies