Rosenberg: Still a bear market rally
This comes via David Rosenberg of Gluskin Sheff.
The week that was
After four weeks of decline with a total loss of 7.0%, the equity market turned in a like-sized gain this past week re-igniting the bulls. With tech leading the way, the Nasdaq has managed to rally to a nine-month high. The desire to be bullish is so intense that the business media totally misinterpreted what both Nouriel Roubini (who has not, in fact, changed his cautious or bearish stance) and Meredith Whitney (she likes Goldman but that seems to be about it in the financial space) had to say last week. Meanwhile, long-standing bullish strategist Jim Paulsen is featured prominently on this week’s Barron’s (he sees 3.5% GDP growth in the U.S.). This will not win us a popularity contest to be sure, but everything we see around us smacks of a bear market rally. Real bear markets never ever end with price-to-book, price-to-earnings, dividend yields, real corporate bond yields or sentiment readings at the level they have been for most of this year.
Earning less impressive than meets the eye
There was tremendous enthusiasm last week, but it could be all the good news we get for a while. We’re not sure that others are going to be reporting similar results as Goldman, JPMorgan, IBM and Intel mustered up last week (the banks received much of their profit growth from trading revenues — not a part of the business most investors pay a very high multiple for). What is very clear is that we have a very long lineup of companies who are still making their numbers (or not) but doing so through cost-cutting and are still missing their sales estimates.
I agree we are seeing a bear market rally. How long this continues is another question that is hard to answer at this point. But, I would note that earnings pre-announcements and surprises have been much more favorable this quarter than in recent quarters, suggesting the news cycle is going to continue to boost shares.