Exactly a year ago today the stock market was celebrating first-quarter earnings reports, reaching for new highs, after recovering from a stumble in February on concerns about situations outside the U.S., notably rising inflation in Asia and the debt crisis in Europe.
This week the stock market is celebrating first-quarter earnings reports, reaching for new highs, after recovering from a stumble in February on concerns about situations outside the U.S., notably inflation in Asia, the return of the debt crisis in Europe, and the earthquake/tsunami disaster in Japan.
Exactly a year ago U.S. economic reports, particularly from the housing industry, consumer confidence, and GDP growth, were starting to weaken as government stimulus efforts, including the home-buyer rebates and ‘cash for clunkers’ programs expired. And economists were beginning to lower their estimates of second quarter GDP growth.
Currently, for the last several months there have been a string of negative economic reports from the housing industry, consumer confidence, and slowing GDP growth. Economists are dramatically lowering their forecasts of first-quarter GDP growth. On Thursday it was reported that the Federal Reserve’s Philadelphia Index of manufacturing activity slumped significantly in April, from 43.4 in March to 18.5, a five-month low.
Exactly a year ago, as the Fed’s April, 2010 FOMC meeting approached, and in spite of the return of negative economic reports, the Fed was saying QE1 had worked and the economy was looking good. And it began preparing markets for unwinding of the stimulus efforts and its easy money policies.
Currently, the Fed is saying the same thing about the economy, in spite of the return of negative economic reports. In its announcement after its March FOMC meeting it said “The economic recovery is on firmer footing, and overall conditions in the labour market appear to be improving gradually.” And it’s widely expected that at its FOMC meeting next week the Fed will decide it’s time to begin preparing markets for the expiration of its QE2 program in June, and the exit from its easy money policies.
Exactly a year ago, oil had spiked up from $72 a barrel in February to almost $90 at the end of April (a high not seen again for 7 months), raising concerns that high oil prices would be a problem for the economy.
Currently, oil has spiked up from $84 a barrel in February to $112 a barrel, raising concerns that high oil prices could be a problem for the economy.
Exactly a year ago, gold was in a nice rally after a pullback low in February. Currently, gold has been in a nice rally after a pullback low in February.
A year ago, the respected Shiller ‘Cyclically Adjusted P/E Ratio’ (CAPE) indicated that the S&P 500 was 30% overvalued. It currently shows it to be 40% overvalued.
A year ago, the Investors Intelligence sentiment survey of investment newsletters had climbed into its historic danger zone of more than 50% bullish. Last week it reached 55.4% bullish, only 16.3% bearish, the largest spread since the bull market top in 2007, and higher than its level in late April last year.
A year ago today, the VIX Index (also known as the Fear Index), which measures the sentiment of options players, was at an extreme low 16.3, showing a total lack of fear or bearishness (high level of bullishness and complacency), a level usually seen at market tops.
The VIX today is at 14.7, an even more extreme low, showing even less fear.
A year ago today we were approaching the market’s ‘Sell in May and Go Away’ unfavorable season, and complaining about the low trading volume. The market rally this week, as we approach this year’s ‘Sell in May and Go Away’ unfavorable season, has been with low volume of fewer than 1 billion shares traded daily on the NYSE.
That’s not even a complete list of the similarities to a year ago today.
And it’s uncomfortable. Because exactly a year ago today, in the midst of the excitement over earnings reports, the market was just three trading days from topping out into the scary April-July correction of last year.
By the time the correction ended in July, GDP growth had slowed to just 1.7% in the second quarter, and the Fed panicked, reversed its plans to end the stimulus efforts, and began promising another round of quantitative easing (QE2).
There’s no guaranty the last two situations will also be similar. But the similarities up to this point are spooky and worthy of investors’ attention.