Amidst all the doom-and-gloom in the markets, I think it is work keeping in mind that a few things are improving. Here are 3 examples:
1) One factor that doesn’t “feel” better, but objectively is improving is the lowered level of volatility in the stock market. Back in early November, I wrote a post, “Less Volatile Markets Ahead.” The chart below shows the actual 30-day trailing volatility of the S&P 500 Index with a linear regression channel drawn from the date of that post (11/4/08).
Lowered volatility may not be an absolute prerequisite for higher equity prices, but given how shaken investors were by 2008, a period of relative calm would certainly be helpful in drawing back interest in the market. Certainly it will help reduce the perception of risk which should lead to higher valuations over time.
2) New capital is being raised in the public market. Yesterday’s $720 million raise for Bristol-Myers spinoff Mead Johnson was the first IPO since November. Cisco, Novartis, Caterpillar, and News Corp have all tapped the corporate bond market, raising billions in the last few weeks. This is not only a healthy sign, but could lead to the type of M&A activity that could cause the whole market to be revalued upwards.
3) Early economic indicators are showing a pulse, if not a robust heartbeat. Albeit these are rather obscure indicators, and they are still showing terrible weakness, the uptick in the ISM survey and the strength in the Baltic Dry Freight Index are intriguing. These are among the earliest indicators of change (as opposed to the highly publicized but lagging indicator of unemployment rate). I would put the improvement in these indicators in the category of “necessary but not sufficient” signs of economic recovery.
None of this is to say that’s it’s time to pop the champagne corks yet, but perhaps we can at least think about putting the bottle on ice. Of course, after the past year, maybe it’s not champagne, but a good, cheap sixpack of Miller (“the champagne of beers”)!
Disclosure: the author has no direct positions in the stocks mentioned herein, but some of his clients may hold small positions in the common stock, preferred stock or bonds of the companies discussed. The same is true of Altria, the parent company of Miller Brewing Company.