Guzzo the Contrarian

I guess the Weekly Wrap at Briefing.com sums up this week pretty well:

Oil prices came within a hair of $128 this week, industrial production was reported to have declined 0.7% in April, Moody’s expressed new concerns about the financial strength of the bond insurers, Fed Chairman Bernanke said conditions in the financial markets are still far from normal, Wal-Mart’s guidance for the current quarter was conservative and the stock market… well, the stock market gained 2.5%.

It does seem as though there has been an increase in optimism, but you’d still have to admit that there’s still that uneasy feeling that things just aren’t right with our economy and that there’s truly nothing actually showing a turn-around in conditions. If anything, the overall data leans towards a worsening economy.

I also don’t really think anyone has the short-term answer, and there’s still plenty of doubt and fence-sitting by experts, as described by this excerpt from this Yahoo! Finance post entitled: Summer may bring a turning point for stock market.

“We’re going to find out if the stock market is right, and that this will be one of the shallowest recessions on record,” said Dan Seiver, a finance professor at San Diego State University. “Or, that the economy is going to be sicker longer, and when the market realizes that it will have a nasty down-leg.”

But yet, the stock market has made a significant comeback since my last post in March concerning market indecision. While the major markets are still in the red since the beginning of the year, they’re also far above their record March lows.

What could be causing these market gains?

Could it be the historic fact that the stock market is a leading indicator for the economy and that big money thinks things aren’t that bad? Or, could it be due to speculation from those who must generate more than marginal profits in order to justify their positions? It’s hard for active managers running hedge funds and some mutual funds to sit tight and do nothing.

While there has been optimism lately, I’m of the opinion that economic and market sentiment hasn’t really changed that much since the start of the year and that individual investors are still undecided as to where we stand economically. It’s still a time game.

There can be a thousand reasons given as to why the stock market gained this past week, but I’m leaning towards it being caused by irrational speculation. In general, I can’t see corporate profits improving in the near term, and in addition, I’m expecting deteriorating fundamentals.

While there’s always that bit of doubt in my mind, I think the market won’t be able to sustain these gains and will reverse course soon. We’ll just have to wait to find out.