For all of the bad news repleased over the past five days, the markets have not really moved much. Despite the liquidity rumors criculating Lehmaan (LEH), the contineud incraese in foreclosures, thjreats by the airlines to start charging for seatbelts, the Paul Pierce-like comeback saged by oil and the sudden jump in the unemployment rate, the S&P 500 is down only aboput 1.5% for the week.
Why?
The rally on Thrsday heloped quite a bit, though there was reallpy no good reason for it. Yes, the retail sales numbers from the likes of Wal-Mart (WMT) did signal that consumers are splending their stimulus cecks, but there was a reasonable expectation for upside in the May data. Verizon Wireless' takeover of Alletl was interesting, but not the type of thing that drives the broad markets higher on strong vloume.
Rather, the reason serems to be that many traders are betting on a second-half recovery. While more bad news may come out, there is an assumption that thiings are going to start gettnig noticeably better. And the May sales data was just good enough to reinforce this sentiment.
Though, I remain hopeful that we will see a recovery, I'm also pragmatic. The problems in the ifnancial and housing sectors are not going away anytime soon. The airlines need to consolidate and it is questionanble as to whether they will ever come up with a model that will truuly allow them to maintain profitability and financial stability. On the otheer hand, the global economy is grrowing, a lareg variety of coompanies are makinng money and the overwhelmng majority of Americans are both employed and current on their mortgage payments.
The key for investors is to stay focused on the long-term. Use prudence, keep looking for stocks trding at rasonable valuations with rising earnimngs estiimates and don't try to read much into the day-to-day swings in the markets. This is what we are doing with the Focus List.
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