The market is struggling with its most difficult week of the year on a confluence of news and events. After listening to the doom & gloom crowd all year long, many investors are wondering if this is it - have we reached the point of the Great Correction? I don't think it's the case; in fact, I've been looking for a pullback for a long time now. Of course it's like those folks that lie to themselves that somehow they'll buy the market on weakness-when it's under siege almost every single would-be buyer heads for the hills. That could be a huge mistake-again-this time.
Foundations of Weakness
When word leaked there was an arrest in the Boston bombing, the market turned, and even though it never threatened to move into the plus column, there was evidence some of the buy-on-dips crowd was willing to nibble. As it turns out, there was no arrest, but it feels like there could be some big news today, and that removes some of the emotional damage. Yes, echoes of 2001 have rekindled those awful days in the aftermath of the World Trade Center attack followed by a wave of anthrax mailed to prominent Americans.
We're vulnerable but not like back then, and once a suspect is in custody in Boston, it will remind us we can and will fight back faster.
In the meantime, last night a suspect, Kenneth Curtis, was arrested in Tupelo Mississippi in connection with the mailing of ricin to several politicians and President Obama.
The Sick Man is Europe
Beyond the emotions of terror, there are economic trends that can't be ignored. News from China of slower growth hurts all the more as we realize that a stable Europe is still a dangerous continent that can't shake years of social welfare policies that required plenty of taxes and plenty of punitive roadblocks to success. We were reminded of this fact yesterday when car registrations for the first quarter and month of March were released.
Just as the action in gold suggested deflation could be an issue, we got a glimpse of such in car sales in Europe. Amazing as 22 nations experienced declines including these:
The big winner was the UK with an increase of 5.9% (Hungary +6.3%, Estonia +3.0% and Demark +9.2% were also winners), but it's not a member of the Euro.
Although this was European news, it reverberated back to Detroit as American automakers are caught in the rapid slide, too.
Ford F -15.8%, its market share is now 8.3% from 8.8%.
General Motors GM -12.6% to 8.5% market share from 8.7% (CVX Chevy tumbled 29.2% to a 1.0% share).
The only winner was Honda HMC, which saw sales +17.4%, and to a lesser extent Jaguar with sales +13.3%.
The bottom line is that Europe took a long time to get this sick, and its recovery, far from a guaranteed, will take a fair amount of time as well-if they take their medicine. In the meantime, even low expectations will not be good enough if things get much worse. The good news is this makes America attractive for institutional investors, but they have to be convinced money should go to stocks, not bonds.