I'm worried we are holding stocks too long.
Wall Street Strategies (wstreet.com) subscriber
On Friday, the Dow Jones Industrial Average fended off weakness throughout the session to close at the high of the session and in winning territory. It was only 10 points higher, but was something of a miracle considering key names under huge pressure, including IBM which accounted for 100 negative points alone. I suspect part of the resolve was related to the broader emotional resolve of the nation as the Boston nightmare was swaying back and forth but closure felt near.
But, there is no mistake this was a rough week for stocks that now has many experts warning of the Spring Swoon.
The narrative is that the US economy has been slowing down each spring in a sort of new post-recession cycle. The interesting thing about this is the "swoon" has been more a stock market phenomenon than economic. I actually think talk of the economic swoon has exacerbated the stock market swoon. Make no mistake, the stock market swoons have been sharp and devastating.
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The first quarter of 2012 saw 787,000 net jobs created in the United States, and the following three months only 324,000. The first quarter of 2012 saw GDP growth of 2.0% give way to a decrease of 1.3% in 2Q12. There is no denying the swoon was economically driven, but this isn't necessarily the case over the past three years where the first quarter has been the weakest.
As for job growth, while there is no doubt last year saw an enormous decline in jobs, the past three years have witnessed stronger additions in the second quarter than the first, with the summer time being the weakest period.
There was a springtime spike in initial jobless claims in 2011 but for the most part claims have drifted lower although lately are finding trouble staying below 350,000.
It's tough to say the economic backdrop justified spring swoons which brings us to extenuating circumstances. In 2011 a deadly tsunami hit Japan, unleashing destruction beyond imagination. Coupled with the meltdown of the Greek economy and onset of negotiations for a bailout, there was a direct and indirect effect on our economy and stock market. The spring swoon lasted through the summer as the debt ceiling debate became an ultimate game of chicken resulting not in a Grand Bargain but the compromise that brought us sequestration.
Last year a warm winter may have distorted economic growth in the first quarter which magnified the second quarter slowdown.
In addition to weather and global conditions, gasoline has been an issue in spring time over the past three years including peaking at the highest weekly average in 2012 and 2011.
Last week saw disappointing data from the Empire State and Philly Fed numbers, adding more anxiety to an already worrisome situation. Coupled with the sharp decrease in jobs to 88,000 in March from 268,000 in February, and it's clear the economy is slowing. The question is "are we swooning?" I'm not sure, as it's too early to tell, ask me after the next jobs report is released. I will say stock market pullbacks have been exaggerated and this presents a dilemma for investors.
This gets me back to the question at the top: are we holding stocks too long?
My answer is no we aren't. That doesn't mean stocks can't pull back or we will not regret holding something by the end of the week we could exit this morning. However, over my career 85% of my regret is for NOT holding stocks. It's happened over and over again... stocks exited even when it seemed like perfect timing rebounding a month, week, or couple of years later to levels significantly higher than where I made the smart move.
Of course my job is tougher than most money managers or private equity guys that can be - famously - wrong for years and still make billions of dollars. We communicate with subscribers all day long and emotions play a much greater role in the relationship. And even though I've gotten better at not bowing to pressure the fact is asking people to endure 15% pullbacks isn't easy - but it has to be done when it's the right thing to do.
You're going to hear a lot more about the Spring Swoon to the point speculation and chatter could be the biggest driver of a pullback.
Over Exaggerated Selling
The first miss for Big Blue since 2005 shocked the street, triggering many to ring the register. This is one of the most unique companies in the world and the kind of stock you buy on dips, not sell on rare earnings misses. Big deals not done last quarter will get done.
Sure, Mickey D's slipped but the company actually took share in America. Europe is sloppy but the -3.3% slide in Asia was the most problematic, particularly the company hiking prices 20% for its burgers. Altogether, this points to vulnerability in stocks and excessive selloffs on bad news, but that doesn't mean it will all be justified. We'll look at it minute to minute, one day at a time, but understand history and closing positions in great companies to avoid near-term pain means missing long term grand slams.
This morning Caterpillar CAT posted a number below consensus and offered renewed guidance significantly lower than previous parameters. The initial reaction was the stock moved lower; however, a lot of the new guidance isn't news. For the most part the continued economic slowdown coupled with poor management from end-users who bought a lot of equipment in the past year while their own businesses were imploding has lowered demand even as the global economy continues to stabilize. Equity futures are higher but down from early morning indications.