Running of the bulls
It's that time of year again in Pamplona, Spain, for all those who dare seek the thrill of running with the bulls. Most participants have a wild look in their eye from an adrenaline rush, while others are intoxicated. They have very little knowledge about the event that is about to unfold or what to expect. Even though participating in this event is loaded with variables and uncertainty, the revelers begin their run down the street. Not only do they have to fear the charging bulls but also the person next to them. For if they were to fall or stumble, they would more than likely have a date with the horn! So much for a preconceived notion of a fun run!
As investors, this summer run down Wall and Broad streets also brings a lot of variables and uncertainty, but of a different kind. Here at home in the U.S., recent economic figures have been anemic. The economy is stalled with little job growth. Corporate earnings for the second quarter are suspect given the near record levels of pre-announcements to lower profit levels. Europe is a basket case and the Chinese "soft landing" may not be so soft after all. Growth has also slowed in India and Brazil. When we toss in the presidential election and the waiting fiscal cliff, there are more variables and uncertainty than most are comfortable with.
In listening to some of the Wall Street pundits, the mantra they have been extolling is the idea that the U.S. is an island, a pocket or a stand-alone amidst an economic global downturn. This is hard to imagine when a significant percentage of earnings by U.S. corporate profits are now derived from overseas operations. In my opinion, the U.S. is not an island unto itself, but a peninsula in which all world economies are interconnected. One positive thing the market has going for it is seasonal strength in the month of July. Another strong point is the backstop of the possibility of QE#3 if the market were to take a waterfall downturn.
The outcome for all of this will be revealed all in the goodness of time, and we shall see if any of this holds true. With a temporary European "fix" announced at the end of month/quarter, stock prices rallied from very oversold conditions. If you're a "bull" in current market conditions, the matador has his cape draped over your face. With plenty of uncertainty and without a clear vision, it's extremely challenging to determine what the next move should be. For me, just as if I were in Pamplona, I would be in a defensive position, placed comfortably on a balcony with a calimocho in hand, watching the events unfold below. In the meantime, enjoy your summer. Toro! Toro! Ole!
Ken Hanley is a Vice President and Financial Consultant with D.A. Davidson & Co., member SIPC, in Coeur d'Alene. This information is not intended as specific investment advice.