Dull is the new good
The Russell 2000 was holding on to a gain 90 minutes into the session, but just barely. At 10:58 a.m. ET the index was up 1.60, or 0.38%, at 424.78. The day’s high of 429.32 was posted shortly after the opening, largely in response to bargain hunting after a stronger-than-expected Conference Board report on its January index of leading economic indicators.
Dull is the New Good
They say never sell a dull market. And it’s hard to imagine a duller day than Wednesday. The Dow Industrials added 3 points. The S&P 500 lost 2 points. The loss at the Nasdaq was measured in a fraction.
Of course, after Tuesday’s plunge, I think we can all agree that dull is good, dull is progress.
I had been expecting some upside following the stimulus plan and the bank bailout plan. That didn’t happen, largely because the GDP news from Japan splashed a dose of reality on investors. Still, after Tuesday’s big drop, I’d expect a flat-to-higher market, and that’s what we’ve seen.
The most encouraging news related to the bank bailout is that nationalization of weak banks is still on the table. I know that many of you don’t like that option, but it is the most expedient solution to the problem.
It should be noted that Bank of America (NYSE:BAC) made a $400 million dividend payment for preferred stock owned by the government. There’s no greater motivation for these banks than the threat of nationalization and compensation caps.
Don’t forget that Bank of America is dealing with balance sheet issues from its acquisition of Countrywide and Merrill Lynch. Those aren’t exactly “homegrown” problems, but they’re not helping.
Upside for Retail
Wal-Mart (NYSE:WMT) has been on a tear the last couple of days. It’s definitely a port in the retail storm. Despite its strength, the S&P Retail SPDR (XRT) I mentioned last week has been essentially flat.
I still think there’s some upside for XRT. It’s at support at $19.50 and could be good for a move to $22. I realize that’s not much to get excited about.
I’ve talked at length about how unemployment is the key metric for the economy. There’s no way we see any recovery until unemployment stabilizes.
Oil and Alternative Energy
We also need to pay attention to oil prices as a metric for investor expectations. If investors start to anticipate a recovery, oil has to move higher. So as long as oil is weak, it’s a direct reflection of sentiment toward the economy.
Unfortunately, gas prices have moved higher while oil prices have dropped. That simply puts more pressure on the consumer. It also clearly demonstrates the need to continue pushing alternative energy. Despite questionable aspects of the stimulus bill and bank bailout plan, Obama is on the right track with alternative energy. I can’t think of many initiatives that will have a longer-term benefit to consumers.
Of course, the stocks are a different matter. Investments in alternative energy have all but dried up. And prices for things like solar panels are getting crushed. Ultimately, that’s exactly the kind of shake-out that needs to happen.
These technologies need to be economically viable. And falling prices should tell us quickly which companies have a cost structure that can survive and eventually be profitable.
Strong alternative energy stocks will be long-term winners. And from current levels, there’s a lot of money to be made here.
Stock market news, commentary, and analysis from Chief Investment Strategist Ian Wyatt.
