If there is anything hotter than the weather across the country then let me know. The sweltering heat here on the west coast, with temperatures easily passing triple digits make us all lethargic, move slowly and wanting to sit it out. Kinda what we are seeing in markets, right? Volatility has been crushed, volume is absent and participation (and interest) is lacking.
What is surprising is where the indices are sitting – nearly three month highs, as the most hated rally in the history of mankind continues. Who has really been excited about buying this market? Other than a few sharp rallies post Draghi, the Fed and earnings the price action has been only OK. Yet, from the beginning of June the SPX 500 is up more than 13%, Nasdaq is higher by 12%, as is the Russell 2000. Meanwhile, volume is lower by some 30% and the VIX has fallen about 45%. What gives?
There is never any rhyme nor reason for market rallies or declines, the stock market being the best barometer of future activity we have out there. If you think six to eight months ahead you might understand the markets are rallying today for the economy may be gathering some steam in early 2013. A change in Washington? No, the market has a poor record of forecasting that outcome but has a stellar record of predicting the economy. Perhaps we should just listen to the message being sent.
Speaking of heat, the midwest is stuck in an awful drought that has nearly killed a bountiful crop of corn, soybeans and wheat. Prices of these commodities have skyrocketed lately as farmers pull out a discouraging amount of corn from the ground. It’s been nearly six years since the estimated crop has been this bad.
Whatever farmers have any good corn will be getting some great prices. Meanwhile, those left out in the ‘cold’ will end up getting some assistance and then re-planting the next season. Beneficiaries? Certainly the seed and fertilizer companies I have been talking about all year, like Potash, Mosaic, Agrium and CF Industries are positioned well with lean inventories, strong demand and good pricing.
There are other beneficiaries as well, Deere is one of the best equipment suppliers while an unlikely player that Portfolio Manager Stephanie Link from Action Alerts Plus has done well with is Dupont (DD), a great yield and operational company; and continues to favor it over the longer term.
So, as the temperatures stay elevated and we look to find some relief from the bright orange fiery sun, we too look for some activity to return in markets. As the election draws near and the uncertainty of the outcome is considered (and the consequences), the action may just be around the corner with something for everyone. Time to stay cool and not melt down.
