The recent rally in equities has returned a certain sense of non-Armageddon to the markets. That's clearly a good thing. But before anyone gets too pleased with all this "better-than-expected" data, let's be serious about what's happening out there. A few relevant items:
- New home sales and durable goods orders were a little better in February than they'd been in January. Super! Durable goods were 22% lower than in February, 2008, and new home sales were also much worse than a year ago. And ohbytheway...inventories remain wildly elevated and prices are still falling fast. See this from Calculated Risk.
- Traders appear to be optimistic about the Geithner Plan. We hope it helps, and it just might. But there's a lot more ugly stuff lurking out there...in the dank* corners of banks' off-balance-sheet vehicles.
- Mortgage equity withdrawals, and the consumer spending they support, are effectively zero. In the long run, that's a good thing, because it should improve household balance sheets. In the short run, it gives consumers less room to maneuver.
- The mother of all state economies, California, appears to be heading from bad to worse.
- The outwardly successful IBM will eliminate a non-trivial number of jobs in the U.S.--from its especially successful business services unit.
Let's be clear here. We welcome good news, and some recent reports have indeed been less-horrific than "expected." And we know that Wall Street often moves in relative terms, with underlying expectations providing the backdrop against which traders and investors operate in the short term. But as we noted in a recent post, the likeliest outcome is a slow-growth environment for some time to come.
Bottom line: This is a bear market until it proves otherwise.**
* This is not a typo. We could have gone with "dark," but dank is one of our favorite words. Always has been.
** And yes, we kow markets often move in advance of the broader economy (let alone the release of certain types of economic data, which often lag the underlying things they're trying to measure). That may be what they're doing here. But in the absence of demonstrated, robust leadership by stocks and industries--as opposed to snapback rallies of the most beaten-down securities--we'll remain a little bit cautious.