In 1965, John Phillips penned “Monday, Monday” for the first album released by The Mamas and the Papas. Although it was the third single issued by a group that had dozens of hits over their short lifetime, it was the only one to reside in the No. 1 position on the Billboard charts in the US. Sadly, only Michelle Phillips has survived.
The song was a melancholy downer. But it is perfect for summing up the experience for most investors over the last ten years. As you can see, if one had only invested on Mondays, the result would have fallen significantly short of investments for the full market period.
Still, as the next chart shows, it doesn’t have to be like that. Our year-to-date chart shows that Monday investors did quite well and kept up with the market early in the year, suggesting that one need not to have been invested any other day. However, in the last few months, just the opposite has been occurring. Even in an uptrending market, Mondays have been mostly down.
This makes it particularly difficult to write this column. As most of you know, I have been optimistically forecasting higher prices for stocks for a while now, yet as I scribble away (can you scribble on a computer terminal?) my eye catches the market sinking.
Today was no exception to the first trading day of the week blues. In a carryover from Friday’s abysmal jobs report and bowing to the uncertainty created by the specter of Federal Reserve Chairman Bernanke’s Fed address tomorrow, all the indexes tumbled again today.
But there is much good news that seems to bring the market back week after week even after a gloomy Monday. Last Thursday, following up on the good news on equities that the Jackson Hole Federal Reserve announcements brought to the gold and equity markets (see last week’s hotline), ECB President Mario Draghi announced a new plan to deal with Europe’s debt crisis.
Utilizing Outright Monetary Transactions (OMTs), the ECB intends to buy the debt of despairing governments to prop them up so long as they ask for assistance and adhere to the ECB’s guidelines regarding their fiscal policy. And he agreed to do this without taking a senior position to other debtors, notably in the private sector. This was not done in Greece, where such investors bore the entire burden of the debt devaluation.
The European bond and stock markets LOVED this news. And here in this country, investors may be able to get a respite from the rally-damaging European headlines that have been causing havoc in our markets, along with theirs, for over a year.
Unfortunately, I believe it is a respite because 1) it can be upset by other parties. For example, the German Constitutional Court is set to rule on a motion for an injunction tomorrow to Germany’s participation in the bond repurchases that have so far worked to bring some stability to Europe. I believe that they won’t do this based on the Court’s previous rulings that have been VERY pro-European Union, but others disagree. (2) The purchases simply put the European crisis off. There is a limit to how much the Germans will do, and all indications are that the needs of the debtor countries exceed that limit. Additionally, these debtor nations have a long history of agreeing to fiscal controls to get relief, then cheating after the fact. Why will this time be any different?
It was a close call on the indicators reported last week on the nation’s economy. We almost went negative, as the week started out with a negative ISM Manufacturing activity report and finished with a dismal jobs report.
The jobs report was especially disheartening. While the unemployment rate was down two-tenths of one percent, the reason that was not good news was that it was the result of four people leaving the jobs market for every one person who found a job. It’s just math. If the size of the job market contracts, the number of unemployed as a percentage can go down, even though the number of unemployed is reduced.
The ISM Manufacturing report for August came in on Tuesday weaker than expected (49.6 vs. 50.0 est) for the fourth straight month. Its level (49.6%) was the lowest since August 2008. The chart below does not look like much of a manufacturing recovery, does it?
Fortunately, in between the two reports the indictors were mostly positive, and the better-than-expected reports (Vehicle Sales, Productivity, ADP Employment, and Initial Jobless Claims) exceeded the worse than expected, 8 to 7. And interest rates remain low and analysts continue to upwardly revise earnings reports at an ever increasing rate.
Hovering amidst the economic reports was the increasing cost of gasoline. A $4-per-gallon price is becoming the norm. To see the headwind that the economy is running into, check out what gas prices have done since 2009:
Finally, here are two parting, conflicting bits of information. First, with it being a presidential election year we have had strong historical, seasonal support for the rally to date. Unfortunately, that support departed at week’s end and you can see some weakness upcoming in the historical tendencies for the market.
Yet, while the market seems overbought and breadth measures continue to suggest a pull back, most investors still have not bought into this market rally that has seen the S&P climb 11.8 % since its June 2012 lows. As the chart discloses, we are not at bullish sentiment levels historically associated with market tops.
So while the song was once again prophetic about today’s Monday market direction, the bullish run to the end of the year is probably not over and, at worse, a pause may be in order. Still, regarding Mondays – listen to your mamas and papas:
Every other day, every other day,
All the best,
Election Year Update:
RealClearPolitics 2-month average: Obama +2.0%
14 Battleground State Polls (13 reporting – no new polls in Oregon):
Only Ohio, Florida, Colorado, North Carolina and Michigan had a portion of their entire poll after the Republican convention. All except Florida saw higher numbers for the President.
Only Ohio and North Carolina polls were completed after both conventions and both saw higher numbers net out for the President. This next week should generate more post-convention polls in the battleground states, but so far it looks like the Democrats are winning the battle of the conventions in the key states.