"The Market, She Be Angry....."

My partner and I were, among the other topics I mentioned in my prior post, discussing how the media covers equity markets as if it is a living thing. Thus, the title, which my partner uttered comically to capture my description of CNBC's Bob Pisani's moronic commentary on equity market behavior last week during one of the down/flat days.

Despite the signs of investors waffling on the economy's health, Brian Wesbury commented that average mortgage interest rates are still a full point lower than they were during the last expansion. And the Fed is moving to ensure low, long-term inflation. Thus, there's no reason to expect the economy to suddenly sieze up and slide into a recession.

But, "the market, she be misguided" for now, I guess. The bulk of investors are too short-sighted, their memories too short, to see beyond a temporary period of seemingly mixed economic and market signals.

Of course, if they were otherwise, the better performers probably would not be better, because they would not be pre-positioned for the subsequent equity market rise, when these mediocre investors figure out there is no need to be cautious, and move back into equities.

I am reminded here of James O'Shaughnessy's admonition that even the best strategies can have periods of as long as two years of underperformance. Our own strategy strives for annual consistency, and has typically achieved it. Right now, with a market full of investors with no particular lasting directional disposition, our strategy is, as expected, underperforming. But it's only been so for a few months, and is unlikely to remain so for very long.

Researching the S&P's historical performance this morning, I found that it had a near-zero trailing 12-month return for several consecutive months only once in the last 15 years- from March, 1994, to January, 1995. Even now, the trailing S&P is above 6%. Last year's first half was similar to this year's in that, by the end of June, the market was negative for the year-to-date. What all this seems to indicate is that the last 3-4 months of weak market returns are unlikely to remain weak for long. Chances are that the index will either plummet or soar sometime within the next few months. And a strategy's relative, or even absolute, performance during these few months of investor indecision could well become moot in another 6 months.

".......the market, She be deliberating........."