Barrons: Week in Review

Michael Santoli over at Barrons on last week's trading.  {Excerpt with my highlights}

....Stocks are now a neglected asset class, slave to the bond and currency markets. The fact that the Treasury market wasn't open for business Monday—and therefore that the largest pool of investment assets on the planet wasn't out there twitching to every hint and whisper of future central-bank action–deprived equity traders of their principal cue.....

.....Not unrelated is the bounce in 10-year Treasury yields last week, from 2.38% all the way to 2.57%. The bond market is, hesitantly, transmitting the notion that even if the Fed does embark on a new asset-purchase campaign, perhaps the markets have already discounted it.

In the short term, the general neglect of equities is a headwind for the market, yet over a longer span it's a benefit. As long as stocks continue to act as nothing but the tail being wagged by the dog of the macro data driving the dollar and bonds, the less likely equities will become captive to any public mania and get overvalued and therefore vulnerable to another bruising downturn.

....And yet, the public has been a net seller of stocks for five straight months, according to the Investment Company Institute. The future returns following prior such streaks of public liquidation of equity funds have been far better than average, as BNY Convergex recently noted.

This is pretty much the salient market theme right now– investors are a bit overconfident and complacent in the very short term and yet in a broader sense are more cautious and skeptical than the economic data and market action warrant......

....On some level the market is simply reflecting the less-reported signs of healing in the economy. Retail sales just re-attained the level right before Lehman Brothers' failure. Nominal gross domestic product is at a record high. Mergers and acquisitions look poised to accelerate. The market has held up despite the stark underperformance of financial stocks, just as it did in 2004 in the face of stagnant semiconductor stocks (then considered a bellwether).

It's not a novel thought to offer that stocks seem ripe to pull back or at least flatten out for a bit. Whatever the salutary effects of a Republican rout on Nov. 2, they seem already more than discounted. Yet there's enough skepticism there, that any stiff pullback would likely be a reason to buy, and not to panic.

Link:  The Storm That Wasn't

*Long ETFs related to the S&P 500 in client accounts.