Why has the market been rallying?

If you just listened to the chatter and didn't look at a trader's screen, you'd be forgiven for not realizing that we're in the midst of a stock market climb.

By The Fiscal Times Aug 10, 2012 4:40PM
The Fiscal Times

By Suzanne McGee


Europe's still a mess, the U.S. economy is slowing, consumer spending is stagnating and corporate America's streak of 11 straight quarters of year-over-year profit growth looks like it could come to an end soon. If you just listened to the news and didn't look at a trader's screen, you'd be forgiven for not realizing that we're in the midst of a stock market rally.


Admittedly, the rally often looks anemic and half-hearted. Most notably Thursday, when the Standard & Poor's 500 Index ($INX) and the Dow Jones industrials ($INDU) eked out narrow gains amidst thin trading. Still, the S&P 500 has had six straight gains -- and even European stocks have been on the upswing, rising to their highest levels since March.


It's the kind of rally that only a technical analyst, eyes glued to his charts, could have much affection for. The S&P 500 breaking above the 1,400 mark is a good sign, some of these market analysts argue. If it pushes through resistance at 1,425, the omens will become even more favorable. Sam Stovall, chief strategist at S&P Capital IQ, said in a client note this week that we may be entering the next wave of the rally -- one that could take the S&P up to the range between 1,450 and 1,500. In contrast, he notes, "we think the bears would need to take the market below 1,355 to take back control from the bulls."


But even some technical analysts remain wary of predicting that the events of the last four days can be sustained. "This rally could be on stilts," declared Mary Ann Bartels, head of U.S. technical analysis at Bank of America Merrill Lynch. Bearish signs "are popping up all over," she cautioned in her note to clients earlier this week, and if those signs don't change we might be in for a correction in September.


And with all the headwinds stocks face, why exactly would the market push higher? True, corporate earnings are better than expected, but as we've discussed here on previous occasions, companies in many cases are beating lowered expectations, and falling short of forecasts when it comes to revenues.

Events in Europe remain at a critical juncture; true, policymakers once more have taken a step back from the brink but a real solution to the crisis has yet to be devised. Back home, there's the ominous fiscal cliff: the looming expiry of Bush-era tax cuts and the simultaneous arrival of mandated spending cuts. True, action by Congress could avert this -- but how many of us really believe Congress will act decisively and in a timely manner? And since when has brinksmanship contributed to wise policy decisions?


To some extent, the fact that investors are tiptoeing back into the stock market tells us as much about what is happening in other asset classes as it does about their affection for stocks themselves. Who wants to own government bonds? Either the yields are non-existent (or very nearly so), or they are so high as to warn investors that there's a danger of the government defaulting -- think Spain and Italy, both of whose short-term debt securities continue to yield around 7%. Many corporate bonds aren't that much more attractive; spreads remain compressed. No one in their right mind is thinking of parking their entire portfolio in corn futures and other agricultural commodities, despite the impact of the devastating Midwestern drought on likely crop sizes and thus on prices.


Stocks, on the other hand, do offer some upside as long as investors can identify companies that offer the same kind of combination of safety and modest upside potential. That's one reason that the rally's leadership has largely been confined to larger stocks and more defensive plays, such as health care companies.


Still, there is an argument out there that is at least half-heartedly bullish in nature. The stock market looks forward -- beyond the next quarter's earnings results and out six months or further, past the turmoil of the U.S. presidential election, past the "fiscal cliff" and into a future in which -- just possibly -- European leaders finally have reached some kind of accord that financial market participants believe stands a chance of resolving the region's woes. Possibly even into a world in which the Federal Reserve has finally bitten the bullet and launched a third round of stimulus, perhaps in the form of quantitative easing or possibly of some other variant. As Sam Stovall points out, a change in price levels frequently change ahead of changing fundamentals.


For now, though, stocks are without question climbing that proverbial and clichéd "wall of worry." So the rally may possibly continue, with stocks gaining more ground than they lose over the course of a week, and rising more days than they post declines. Just don't expect to start feeling good about it all.


Suzanne McGee is a columnist at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.


More from The Fiscal Times


Aug 10, 2012 5:49PM
Wall Street has priced in all the bad news. All of it. Wall Street has "forever" priced into the market. Nothing is going to catch the stock market with its britches down, not like in 2008. Wall Street is just too smart to let that happen again.

Crooks and open criminality are what are driving the markets.

I've pulled all my money out of the markets. I will not reward the bankers, the FED, a feckless and corrupt government, the criminal oligarchs that declare their profits here in the U.S. having exploited the labors of a foreign workforce, manufacturing this "stuff" abroad. It's all lies.

I will not support this open manipulation. Free enterprise is dead. Capitalism is dead. America is dead. Long live worldwide cronyism.
Aug 10, 2012 6:23PM
When Congress and senators and people like Martha Stewart are told in advance when to pull their cash and the average JOE is left holding the bag .  You are silly to trust it .  Oh ya the S.E.C. is watching like a hawk ...HA .
Aug 10, 2012 6:09PM
Because the stock market is 100% smoke and mirrors !
Aug 10, 2012 8:41PM

The markets now run fully automatic by computer programs  based on data charts and direction. Each sector has it's own algorithmic set of data points which trigger buys and sells at the speed of light. The computers move in and create momentum, up or down, with massive amounts of money which then trigger other computers to follow suit. Once the data point has been reached, the opposite order will be given to maximize the profit of a particular trade.


We are talking millions of dollars moving in milliseconds for fractions of a cent. High Frequency Trades create momentum in the market, which in turn creates massive profit, or loss, and it all depends on being the first to create that initial wave. A   $50M bet on a 1 penny move in less than a few seconds can really add up over time.


The data point could be as simple as a specific time of day, day of the week, or could be based on criteria of a report due. The points can be changed at any time by programmers to reflect changing market conditions, or inside information.


Last week, the stock market futures mysteriously went up after trading hours, after a dismal market day and week. Of course the  jobs report was officially released the next day, and the market jumped. Doesn't take a brain surgeon to presume the jobs number was known by  a few market insiders who took advantage of that kind of information.


 Political donations really do pay, and that  is how business is done on Wall St and Washington. It is still who you know and what you know, but more importantly now it's when you know it.

Aug 10, 2012 7:01PM
The market volume is low. The banks are manipulating the market for profit. The Traders need to earn their bonuses so they are pumping up the market are just three of the reasons. Until Glass Stegall is re-enacted from public pressure the banks will maniplute the market to make money. How much longer are you going to allow yourself to be screwed by the banks and wall street? How much longer are we going to put up with 18 million Americans unemployed? How much longer are we going to have families losing their homes and having children live in cars? Until you, yes you if you have read this far, stop electing people to Congress with a social agenda or who are ultra right or left instead of people who will straighten out the housing and credit mess, we will continue to experience this pain. So the only people who are making money are the market manipulators and they continue to do it day after day at your expense. When you look in the mirror just say Baaaaa, because you are all just a bunch of sheep getting fleeced.
Aug 10, 2012 8:18PM

Stock prices are based upon the expected values of all future cash flows in the context of stock supply and demand.  So why are stocks going up?  Well, it could be that demand is up because bond yields are in the toilet.  It could be that sellers are fewer today because they are unsure what Congress and this epic failure of a president will do about taxes and spending and so they are just in a holding pattern.  It could be that Bernanke has put tons of cash into the system, with promises more is on the way, thus fueling a massive inflation.


Oh, I know, the government says there isn't any real inflation.  And using their rubrik they are right.  Except for something very common sensical...Because housing prices are a major component of the inflation index and housing prices have been falling, inflation in day to day expenses, like food and energy, have been offset.  The problem with this little situation is that most people aren't buying and selling homes or real estate generally, and so they haven't been able to take advantage of falling prices.  Instead, falling prices have resulted in asset devaluation--people are suffering paper losses unless they sell, in which case they become real losses.


So we have significant REAL inflation, and pathetic GDP.  We are in a recession, but because we don't deal with numbers using common sense, we can still pretend we have positive growth.

Aug 11, 2012 12:16AM

The market is going up because the Wall Street dingdongs know the government

will spend money and more money for the forseeable future. The economy is in the

pits but that does not matter. Wall street is all hype and has the biggest collection of

incompetent managers - they have no comprehension of risk or little else. The transference

of jobs between Wall Street and the Government is constant. Wall Street fills the ranks of the

SEC and other agencies then go back to Wall Street to receive their bonuses for writing the

laws that favor Wall Strret. What a good game it is for the legalized crooks.

Aug 11, 2012 2:05AM
Generally speaking, we determine the quality of things by comparing them to similar things.  If we compare the US economy to the economies of the Euro Zone, Asia, and South America, the American economy look far better than all the others.  Our business are cautiously making profits and our stocks are paying dividends and increasing in value.  The movement to overall business improvement is slow, but that is not unusual.  Unlike those who buy lottery tickets and visit gaming establishments regularly, most business management does not like to take risks without an almost certainty of profit improvement.  That is not going to change, and therefore market improvement will continue to be slow.  As opposed to business management, American individuals are impatient and we want things to get better overnight.  It simply is not going to happen, no matter who is President.  Our forefathers had the foresight to make it difficult for any political wing to take absolute control and do with our government what they wanted.  The writers and signers of our Constitution realized that good things do not happen overnight, and never happen without the will of the majority behind them.     
Aug 10, 2012 6:31PM
Because the people/institutions with the big bucks want it to. When they want it to crash, they'll all know in advance and sell short and make billions on the way down. The only institution more manipulated is the US Congress. It's no different than going to Havana back in the 50's and gambling.
Aug 10, 2012 7:10PM

Hey, do you want an expert opinion.....okay......I'll give you one.....there are no experts!


Is there manipulation, damn right there is.  Who manipulates; the powerful in this country.  Who are they, the wealthy and Congress (all too often, one in the same, can you say Paul Ryan, Eric Cantor, Nancy Pelosi, Joe Walsh (not the Eagles Joe Walsh) or Randy Hultgren)). Who gets manipulated, you and me, at least until we get p'od enough to vote the **** apertures out, ALL OF THEM.  

Aug 10, 2012 8:11PM
And here go the gas prices!  Funny how my salary doesn't go up when the stock market does.
Aug 11, 2012 7:07AM
Another Kool Aid article. The REAL reason for the rally is that there are few if any private investors left and all stock activity is done by super computers controlled by giant financial rackets. When you can manipulate millions of positions every second, it's no longer an exchange. Like ALL of the posters on this blog state in some way... Wall Street is dysfunctional to America. It serves no purpose but it has caused us irreparable harm. We will need a new currency soon, an elimination of financiers and laws separating money touchers, government and justice. It doesn't matter who wins the elections this Fall, the average person and family already knows it will have to fight to restore Freedom and crush New World Order. Both events will likely be simultaneous. Heaven help us through 2013, it bodes to be a barren year with the huge task of rebuilding from the ground up. We haven't heard much about the Bushes and the Skull & Crossbones Club. Isn't where we are today EXACTLY where we accused the Elites of the Ivy League of leading us to back in 1999? There's no such thing as organized finance. It becomes a racket and corrupt.  
Aug 10, 2012 8:10PM
Well there is definitely some good comments there.  But one thing for certain with no volumne no one is benefitting, and they keep changing the components of the Dow Jones to make it look good.  With the Media and Warren Buffett behind Oblama, you can bet that it is being manipulated.  Just don't bet with your own money.  Once the election is out of the way, watch the free fall.  S&P will drop to 900 and that is almost a sure thing.  Few good stocks, but be careful.  Right now it is fueled on BS.  60 Minutes says the True Unemployment is 22%, not single digit.  Just be careful, mainstream media will keep Oblama in there so they can get there kickbacks.  How about the wonderful Stimulas Program.  Each job cost $2 Mil., and Solar Energy.  What a joke.  Just be Careful.. Wish there was a stock for Food Stamps, we could make a fortune on them, their way of buying votes. 
Aug 10, 2012 7:14PM
Where else are investors/savers to go these days. With banks paying near 0% on CD's "Big Ben" has the whole thing wired for Wall Street. Were out of this economy since were retired and our years of savings leaves us with the choice of keeping our wallet in our pocket or spending down our principle. Many seniors are doing ok but their's tons of us who have watched our retirement income dry up. Sort of a joke to do what they told us, i.e. take care of ourselves and then have the Fed micro-manage the entire economy. for the pass decade and what looks like for many years to come.
Aug 11, 2012 11:25AM
I still have a fair amount of money in the stock market; not because I think the market fundamentals are strong, but because I believe the manipulative actions of governments around the world will keep stock prices elevated over the medium term.
The stock market has been transformed by monetary manipulation into the equivalent of a junky.  Europe falling apart?  Don't care.  China s;lowing down? yawn.  Housing market still shaky?  Who cares?  100% GDP of debt?  Just doesn't care.  The Market, like a junky, has lost interest in everything but the next fix.  He doesn't care about family, the job, friends, he doesn't even care about his own health.
The stock market has lost interest in EVERYTHING THAT MATTERS and sits perched on it's present pinnacle awaiting it's next fix: more monetary manipulation, more quantitative easing, more debt spending. 
It is not a matter of "if" the market is going to take a major hit, it is a matter of when.  And the when will be determined by our major pusher and pimp: Ben B.  He still has plenty of dope to feed the markets.

Aug 10, 2012 9:56PM
What does it tell you when J.C.Penney's numbers came in horrendous and yet people still were buying stock in that dying company.There is no rationalizing ,this company probably will not see another x-mas..
Aug 10, 2012 8:02PM
i know why the market's are up... so the investor's can drop it on it's head,so they can run it back up in a couple of month's!!!   wait and see!!!
Aug 10, 2012 8:42PM

Really! Really! You guys actually believe the garbage we're being fed?


The market has to climb. It can't be too drastic or too quick, it would seem manipulated.


The forces to be whoever the hell they are must create an illusion that the presidents policies are actually beginning to work. For example historically gas prices always rise as we approach summer? Not this year! They were declining, until there was heat over the strait of Hormuz possibly being closed and then the prices began to climb. Then all of a sudden they begin to go back down "Amazing" The economic markers will paint a rosy picture until the election is decided once again in the favor of  Barack Obama. God have mercy on our soul!

Aug 11, 2012 12:12AM

Because the Feds and the Central Banks all over the world are pumping them up and trying to dump these overvalued losers on any suckers that are willing to buy.


Anybody that actually reads the news on a daily basis is well aware of this fact, and they are also well aware that the feds and central banks aren't going to quit until the entire world is in a major depression!

Aug 11, 2012 12:26AM
What a bunch of double speak hooey.  You don't have any more of an idea what the markets are going to do than the lead driver at Dick's towing who has never bought or sold a security.  You however would like to talk some positive jive for your boy Obama because that is what MSNBC requires of you in order to receive a paycheck from them.  Duh, we ain't so stupid as you tink.
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[BRIEFING.COM] The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.

Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change ... More


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