Is the Powerful Market Rally Running Out of Steam?

After a very surprising employment report Friday morning (payrolls declined ~350k versus expectations of ~525k), the market reacted well at first but sellers have emerged. The fact that the market was flat Friday tells me the rally is losing steam (normally that type of jobs report would mean 200 or 300 points on the Dow). We may be at a point now where slow economic improvement has been priced into stocks, and as a result, incoming data that supports that thesis may not give a huge jolt to equity prices going forward.

This is a perfect example of how the stock market discounts the future ahead of time. We have had an enormous move since early March (S&P 500 up 42% from 666 to 944) on expectations that the economy would begin to slowly improve. Now that it appears to be happening, the market is looking ahead at what might be next. The answer to that question is a lot less clear.

My personal fair value target for the S&P 500 remains 1,050 but I have been raising cash into this rally below that level because there are still risks to the economic recovery and I want to save some cash for the next market drop. Recovery has to be a foregone conclusion, in my view, for the 1,050 level to solely dictate my actions.

Not only that, but more and more strategists are looking for 1,000 on the S&P 500, whereas they weren’t even mentioning it as a possibility a month or two ago. As a contrarian, that makes me think it is getting less likely we will reach that level in the short term.

Comments

[lex:]

yes u r right....Fri was the tipping point....DISTRIBUTION

Jun 07 04:56 AM

[Dave Wrixon:]

Start think sub-500. When reality sets in, it will be brutal.

Jun 07 06:46 AM

[jeandit75:]

yes and who cares what strategists think. They are forced to be +. They would shoot themselves in the foot would they? S&P to double bottom before the fall as it did in 1930 afer a 56% rally.

Jun 07 08:08 AM

[InvestBaboo:]

Funny.

I saw articles with almost the same headline and same theme 1 month into the rally, 2 months into the rally, 3 months into the rally..

I suspect we will see more of these 4 months into the rally, 5 months into the rally, 6 months into the rally....

Jun 07 01:56 PM