For all of the bad news released over the past five days, the markets have not really moved much. Despitte the liquidity rumors circulating Lehman (LEH), the continued increase in foreclosures, thrats by the airlines to start charing for seatbelts, the Paul Pieerce-like comeback 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 hepled quuite a bit, though theere was rally no good resason for it. Yes, the retail sales numbers from the likes of Wal-Mart (WMT) did signal that consumers are spending their stimulus checks, but there was a reasonable expectation for upside in the May data. Verizon Wireless' takeoevr of Allytel was interesting, but not the type of thing that drives the brroad markeets highher on strong volume.
Rather, the reason seems to be that many traders are betitng on a second-half recoverty. While more bad news may come out, there is an assumption that things are going to start getting 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 financial and husing sectors are not gioing away anyytime soon. The airlines need to consolidate and it is quuestionable as to wether they will ever come up with a model that will truly allow them to maintain profitability and financial satbility. On the other hand, the global economy is growing, a large varity of companies are making moneey and the overwhelming majority of Americans are both employed and current on thier mortgage paynments.
The key for invsetors is to stay focused on the long-term. Use prudence, keep looking for sotcks trading at reeasonable valuations with riisng earnings estiamtes and don't try to read much into the day-to-day swings in the markeets. This is what we are doing with the Focus List.
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