Behind the Numbers: July 2009 Market Review

In the process of reviewing price action across the entire spectrum of global equity, bond, and commodity markets, I am struck by one simple fact: virtually every market segment went up in value in July. That sort of price action in a challenged economy is uncommon, if not irrational.

Is this price action a sign of an incipient turn in the economy? Will we continue to rally? Are we going to have a V-shaped recovery? Come on back in, the water’s fine? What recession? Hardly.

I continually see the battle royale between the bulls and the bears in the markets. I truly believe we are entering into a new global economic norm and, as such, before we are able to thrive we need to survive. Thus, in my opinion, while others may consider themselves bulls or bears in terms of the markets and economy, I would classify myself as an animal which wants to aggressively survey the landscape, strengthen my reserve, increase my store of value (savings), and judiciously put some small stakes (investments) to work knowing that there remain real risks on the horizon. For lack of a better term, call me a friendly fox.

Without further delay, let’s assess the July 2009 Market Review:

I have added a few indices to take a more comprehensive view of the markets. These indices include: DJ-Global ex U.S., an emerging market index (MSCI), a commodity index, and a U.S. dollar index. I hope readers find these helpful.

Let’s grade my calls from last month, at which point I wrote:

I repeat my May calls.
I had forecasted in the Sense on Cents May 2009 Market Review:

Add it all up and I think the following will occur:

  • equity markets will now move sideways in range bound fashion;
  • the bond market will move lower in price, higher in rates;
  • the dollar will gradually decline;
  • our economy will be filled with more stops than starts.

I would assess my calls as mixed overall. I certainly would not have forecasted the explosive move higher in the equity markets over the last three weeks. For those who forget, three weeks ago the markets appeared to be breaking down once again as the S&P 500 broke below the 880 level. Were the earnings reports so strong to justify a 12% rebound from that point? I don’t think so. Were there significant fundamental improvements in the economy? Hardly.

The simple fact is there is so much excess liquidity currently in the system looking to be put to work. This liquidity drove all equity markets, bond markets, and commodity markets higher. The U.S. Treasury market did not even sell off as one may have expected.

The risk for investors is that they get chased into the market feeling that they have missed the move. I always respect the markets, but whether I agree with them or not is a different conversation. Based on the current price action, I can foresee a move in the DJIA to the 9600 level. That said, I would not commit capital at these levels. Why 9600? From a technical standpoint, having taken out the 8650 level, the next resistance level is 9600 which represents a .382 retracement of the entire range on the DJIA (14,200 to 6800).

I do feel there is a significant disconnect between our underlying economic fundamentals and our market performance. As I wrote the other day, “Don’t Fight the Fed” and right now Uncle Sam’s liquidity spigot remains wide open.

At some point, we will be forced to clean up the overly saturated economic landscape but for now enjoy the positive returns in your funds if you have them.

Aside from that, continue to pare down expenses and increase savings as this storm is a long way from being over.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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