Market Dances

For the 52 weeks ended Friday, the S&P 500 was down 12%, with every sector down, excepting a slightly different from zero performance from IT. Yet, looking at bellwether Oracle's earnings report, there was very little to cheer about. Positive equity earnings report continue to be built on cost cutting, which is reactionary and backward-looking.

For the same 52 week period, the FINRA-Bloomberg Investment Grade Corporate Bond Index was up 19%. Investors piled into corporate bond funds, to the point where PIMCO's Total Return Fund became the largest bond investor, period. So, up to this point being senior in the capital structure, tilting towards size and quality issuers has proved far, far superior to being in equities.

Now it has always been a classic technical indicator that when retail investors start piling in, it's usually a market top. Perhaps it is so for investment grade corporates, but it's still hard to understand what fundamentals that are going to drive consistent outperformance in equities.

Firms need to be reporting top line revenue growth for things to be fundamentally better. There will be no help from pricing, so the gains will have to be volume driven. So, for example, the Street has been recommending consumer stalwarts like P&G and Colgate--we all to brush our teeth and shampoo our hair after all. Whatever domestic volume gains that we see will be largely at lower margins and will represent temporary shifts in market share. All of these fundamentals seem fairly priced into the market, which is why the market seems so directionless.

China's economy is booming, and most of it seems to be inwardly directed. Again, this doesn't appear to hold a lot of promise for US and European industrial multinationals. There is still a lot of liquidity sloshing around the global markets. Since this appears to be a trader's market, I would guess that there will be more activity in commodities and in distressed financial assets.