Monday, March 21, 2016

Sluggish Beginning To Week Has Stocks Cautious, Business Stalled

With little information upon which to base trading other than the recent dovish sentiments expressed by central banks, stocks in the US moved in a tight trading range to start the week.

The lack of volatility was something of a surprise, given that investors and speculators have been given the green light by Yellen and Co., though perhaps upon closer inspection, getting ahead of breakeven for the year has some of the more seasoned veteran traders taking a pause.

By just about any metric, stocks on the S&P and NASDAQ are highly overvalued, with most P/E estimates averaging in the low 20s on both exchanges. Dow Industrials are just a little less highly-valued, though some, such as Caterpillar (CAT) are showing severe signs of globalization stress.

CATs problems remain on the revenue side of the ledger, as the company hasn't met targets since the financial calamity of 2008. Global growth being as slow as it has been - and especially such in mining, infrastructure, and major construction, CATs bailiwick - the company is simply unable to deliver results like those during the housing and credit bubble.

That's largely the case for major industrial companies, which have weathered the storm via stock buybacks, close attention to labor levels, and an outright strike on capital improvements. While this short-term strategy may be worthwhile from quarter to quarter, in the long run, these companies have to get back to growing and maintaining their core business interests. Uncertainty - despite the easy credit conditions which are prevalent - concerning global monetary policy is keeping the lid on capital investment.

Worse yet, and this is not seen in any of the macro-metrics, is the paucity of new business development, either in the way of spin-offs or entrepreneurial endeavors. Small business, saddled by an onerous regulatory regime, high taxation and pressure on state legislatures to increase minimum wages, is stifling business formation.

These conditions cannot maintain for too long, lest the markets revolt, consumers retrench, and recession becomes reality.

Today's impish gains:
S&P 500: 2,051.60, +2.02 (0.10%)
Dow: 17,623.87, +21.57 (0.12%)
NASDAQ: 4,808.87, +13.23 (0.28%)

Crude Oil 41.68 +1.31% Gold 1,244.30 -0.80% EUR/USD 1.1245 -0.20% 10-Yr Bond 1.92 +2.78% Corn 369.00 +0.54% Copper 2.29 +0.31% Silver 15.86 +0.31% Natural Gas 1.82 -4.72% Russell 2000 1,098.58 -0.28% VIX 13.79 -1.64% BATS 1000 20,677.17 0.00% GBP/USD 1.4373 -0.62% USD/JPY 111.8770 +0.34%

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