S&P 500: +18.60 (+1.78%)
“Merger Monday” sparked a big rally, with Xerox Corp’s acquisition of Affiliated Computer Services, Abbott Laboratories (ABT) buying Solvay to gain a stronger emerging markets presence, and Johnson & Johnson (JNJ) buying an 18% stake in biotech firm Crucell to develop a universal flu vaccine.
Despite the today’s gains, volume on the NYSE fell to its lowest level in one month, coming in below one billion shares.
The Wall Street Journal ran an article (see abbreviated version here) that said earnings could surprise to the upside, this time as a result of stronger sales rather than cost cutting. Still, the vast majority of columnist and opinion articles floating around carry a negative tone regarding the market rally’s sustainability.
Our concern about the market outpacing fundamentals has been well-documented at this point. The one positive factor, in my mind, is the investing community’s reluctance to embrace the rally energetically. As I said repeatedly, the market has a history of remaining overvalued for extended periods of time and it’s impossible to predict when the market will correct.
While it’s anybody’s guess as to the timing of a pullback – it could be two weeks or two years – there is no denying the bear case is stronger the bull case at this juncture.
Quick Hits
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Peter J. Lazaroff, Investment Analyst
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