EmailThe first calendar week of 2012 is complete and it brought good things for stock market participants, namely better-than-expected employment data and a 1.6% gain for the S&P 500.
Naturally, there is a "yeah, but..." tone to most reports reviewing the start of the year.
That has become the nature of the beast we suppose. For some time, the default angle has been to focus on how bad everything is around the world and how much worse it can get. That regular confidence bashing is hard to overcome, so much so that it becomes difficult to appreciate good news when you are looking right at it.
Good news like double-digit earnings growth in 2011. Good news like a manufacturing sector expanding for 29 consecutive months. Good news like an improving labor market.
We can hear the "yeah, but..." with each of those passing thoughts. Heck, we can see the "yeah, but..." in the stock market's extremely high risk premium.
At Friday's close, the spread between the forward four quarter earnings yield for the S&P 500 and the 10-year Treasury note was 643 basis points. The average spread over the last 16 years is 159 basis points. To say the least, there is a whole lot of "yeah, but..." in the stock market's valuation right now.
It is coming out again today as the market turns its attention to the meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel to discuss ongoing reform efforts for the eurozone.
It is seen in the yield on 6-month German bills going negative for the first time and overnight deposits at the ECB hitting a new record high.
It is being heard ahead of Alcoa's (AA) earnings report tonight.
It is in the concerns about Iran and that country's threats to close the Strait of Hormuz.
One doesn't have to go far on the thought continuum to think worrisome things. There is admittedly a lot to worry about and even a 92% rally off the March 2009 low for the S&P 500 hasn't been enough to change the prevailing tone.
So it is, but we'll conclude today with one, last worrisome thought for sidelined investors: according to the Stock Trader's Almanac, a gain in the S&P 500 over the first five days (today is the fifth trading day of the year) has preceded full-year gains 86.8% of the time since 1950.
No two periods are alike of course; however, that's one "yeah, but..." thought with a positive slant that might help to begin what is likely to be another "yeah, but..." week.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
