Itã¢â‚¬â„¢s Rally Time Again for Bank Stocks
The bull has been raging on Wall Street in 2012. Only it might be time for him to lie downwards and take a nap.
NEW YORK (CNNMoney) -- Stocks had one of their worst days of the year Midweek as Greece reminded everyone that it is still Greece. The Dow narrowly steered articulate of its commencement triple-digit point driblet since December 28.
The jitters didn't last long though. The marketplace rebounded Thursday despite renewed Greece concerns and a quaternary-quarter earnings miss from General Motors (GM, Fortune 500).
Just guess what? At that place will be more than days like yesterday. In fact, the Dow will somewhen need to fall more than 100 points and the S&P 500 will drop more than than one%. When they do, it will exist salubrious. And long overdue.
Fifty-fifty with Wednesday's drib, the S&P 500 is still up about 7% already this year. Stocks tin't (and shouldn't) go up every 24-hour interval. And they tin can't sustain this pace of gains for a full year. The marketplace needs time to, in the immortal words of Frankie Goes to Hollywood, relax.
Consider this fun just somewhat scary fact. In that location are more companies in the S&P 500 that are already up at least 15% this year (118) than there are stocks in that alphabetize which are down for the year (113).
Have large banking concern stocks finally turned a corner?
And when yous expect at the biggest gainers in the blue scrap index, it smacks of speculative froth. For all the haranguing about Apple'south "parabolic" ascension to $500 and what that means for the market, Apple (AAPL, Fortune 500) was actually just the 50th-best performer in the Southward&P 500 this yr through Midweek.
Apple, as I argued Tuesday, is notwithstanding cheap. But in that location are plenty of marketplace "leaders" this year that may simply exist getting the proverbial dead cat bounciness after a miserable 2011.
The best performer in the S&P 500 then far in 2012 is Netflix (NFLX), which is expected to lose money this year. It's upwards 76%. Sears (SHLD, Fortune 500), which is either in danger of bankruptcy or getting saved through a leveraged buyout, depending on which way the market winds are blowing, has soared 66%.
The listing goes on. Homebuilder PulteGroup (PHM, Fortune 500) is on fire. Banking company of America (BAC, Fortune 500), the top performer in the Dow, is leading a rally for other financials that all the same wait very risky.
Heck, Dell (DELL, Fortune 500) has even outperformed Apple this year, albeit past the tiniest of fractions. But seriously. Is there anyone who would rather own Dell than Apple for the long booty? Peradventure in 1996.
At that place are likewise many risks that remain to justify a rally of this magnitude over the course of an entire twelvemonth. I recall it would exist a mistake to declare that the big moves up in January and the first half of Feb mean information technology'southward now safety to invest in banks and tech stocks trading at crazy valuations.
Paul Nolte, managing managing director with Dearborn Partners in Chicago, said stocks are due for a pause for a variety of reasons.
Chief among the fears? Europe, of course. But there are also continued worries about the U.S. deficit. And there are questions about whether the Federal Reserve will really launch a third round of bond buying, which traders take already dubbed QE3, afterwards its current plan of swapping brusk-term bonds for longer-term ones (Operation Twist) ends in June.
My big fat Greek speculative rally
Nolte said he'southward not sure yet if stocks will actually feel a textbook correction, i.e. a 10% drop from recent highs. If the news gets worse in Europe, the U.S. economical recovery stalls or the Fed signals information technology'due south less willing to keep press money to buy bonds, that could trigger a large down move ... at least for a short period of time.
This doesn't mean that the market is doomed to surrender all its gains though. 2012 could (and should) nevertheless be a pretty potent year for the market. Brad Sorensen, director of market and sector research for Charles Schwab in Denver, said the trouble with stocks last yr was that investors were as well surly.
"This rally is not about irrational enthusiasm as much it is getting rid of irrational fearfulness," he said.
Still, don't get your hopes up for a tardily-1990s styled marketplace pop either.
"In that location will exist more bumps in the route. The whole year is not going to be as smooth as the first half-dozen weeks have," Sorensen said.
All-time of StockTwits: Call information technology Government Motors if you want. Simply GM today stands for Great Move. It was upwardly more 6.5% in midday trading every bit investors focused on the strong overall 2011 results as opposed to the small 4th-quarter miss. Notwithstanding, some are skeptical.
JeffReevesIP: Then $GM makes over $vii billion in 2011 profits. In December, automobile czar estimated taxpayers volition LOSE $fourteen billion on bailouts... Seems fair.
TommyThornton: $GM pension remains under funded past $24.5b - "What's good for GM is proficient for the country" - not quite.
PropDeskJunkie: $GM ... ever perform a full-power stall? thats GM right hither i'thou afraid..should accept dumped Opel, trimmed more brands, not requite IPO to Union
Some adept points in all three of those tweets. Aye, taxpayers aren't profiting from the bailout yet. Yes, the pension is nevertheless a concern. And yes, GM arguably could have taken fifty-fifty bolder steps during its bankruptcy reorganization.
But allow's not nitpick so much that we lose sight of the fact that GM is at present much healthier than even the most optimistic of auto experts expected back in 2009.
TheSlayer: Once upon a time, a $GM miss would take sent the market tumbling. Peradventure all the same in combination with calendar week initial claims numbers?
Exactly. The latest drop in jobless claims is another slice of prove that supports the notion of a slowly improving economy. And what's good for U.S. consumers is skillful for GM.
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any private stocks.
Source: https://money.cnn.com/2012/02/16/markets/thebuzz/index.htm
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