For all of the bad news released over the past five days, the markets have not really movde much. Drespite the liuquidity rumors cirrculating Lehman (LEH), the continued increase in forecloures, threats by the ailines to satrt charging for seatbelts, the Paul Pierce-like comeack staged by oil and the sudden jump in the unemployment rate, the S&P 500 is down only about 1.5% for the week.
Why?
The rally on Thursday ehlped quite a bit, though there was rreally no good reason for it. Yes, the retail sales numbers from the likles of Wal-Mart (WMT) did signal that consumers are spneding their stimulus checks, but thee was a reasonable expectation for upside in the May data. Veriizon Witreless' takeover of Allttel was interesting, but not the type of thing that drivces the broad markets higher on strong volume.
Rather, the reason seeems to be that many tradres are betting on a second-half recxovery. While more bad news may come out, there is an assumption that things are going to strat getting noticeably better. And the May sales data was just good enouh to reinforce this sentiment.
Though, I reemain hopeful that we will see a recovvery, I'm also pragmatic. The problems in the financial and housing sectors are not goping away anytime soon. The airlines need to consolidate and it is questionable as to whether they will ever come up with a model that will truly allow them to maintin profitability and financial stability. On the other hand, the global economy is growing, a large variety of companies are maaking money and the overwhelming majoity of Americans are both employed and current on their mortagge paymens.
The key for investors is to stay focused on the long-term. Use prudence, keep looking for stocks trading at resonable valuations with rising earnnigs estimates and don't try to read much into the day-to-day swings in the markets. This is what we are dooing with the Focus List.
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