In a week shortened by the July 4th holiday, the S&P500 still managed to creep up 0.55% on very low volume. Volatility fell to another post-2007 low.
The technicals point to an extremely overstretched market. For example, the S&P closed above–not just near–its upper Bollinger band. With such conditions, even minor pullbacks become far more likely to occur. But setting record high prices aside, breadth is not doing nearly as well. New highs minus new lows, for example, fell notably last week. So it’s becoming increasingly clear that this stock market rally may be ripe for a correction. How serious such a correction would be is an open question, but any type of pullback, from here, would be very much not unexpected.
US macro data was dominated by the jobs report released near the end of the week. While on the surface, the report beat expectations (almost 300 thousand jobs were created), beneath the surface, the reality was not so rosy. With respect to the jobs created, about 800,000 part-time jobs were created and 500,ooo full-time jobs were lost, netting out in to a 300,ooo reported gain. The problem, obviously, is that while half a million good (high paying , with benefits) jobs were lost, 800,000 bad (low paying, without benefits) jobs were gained. That’s not good news. In addition, the labor force participation rate remained stuck at 30 year lows. Beyond the jobs report, the Chicago PMI missed badly. ISM manufacturing and construction spending also missed. Factory orders missed. ISM services also missed. On the brighter side, pending home sales beat expectations.
Finally, the NY Times just published a front page story titled: “Welcome to the Everything Boom, or the Everything Bubble”. In it, the author argues:
Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.
Imagine that—most risk assets are over-priced, are not priced according to long-term historical averages that are rooted in fundamentals, and are poised to disappoint all investors who hold them today.
What’s worse, the author dares to suggest that we may be witnessing a “bubble”.
Where have we heard all this before, week after week, month after month?
Coincidentally, we also heard similar warnings in late 2006, most of 2007 and even early 2008. Did those warnings prevent the global financial meltdown and the huge investor losses that followed? Nope.
And it’s doubtful that this warning from the NY Times will do anything different.