THE MARKETS
I find some recent market statistics to be encouraging. Corporate executives appear to be more optimistic on their own companies as the insider trading data for the week ended August 16 showed a parity of sales to purchases. In addition, margin debt fell 6.9% in July, a significant drop, to the lowest level in almost four years. A sizeable decline in margin debt has often been associated with market bottoms, as the speculative tone of a prior market peak with its heavy margin buying turns into the liquidation of margin positions – forced or otherwise – often seen near important lows.
The irony in the trading year to date is that the market was only able to gain any real traction in the past five weeks — a period in which many recovery boosters have begun to wonder aloud if the economy is on the verge of stumbling. Such a trading pattern could be suggesting that, beyond any considerations regarding the timing and vigor of recovery, the majority of investors simply regard stocks as oversold. To keep this market rally going, investors need to believe there is more value to uncover; and for that to happen, the feeble earnings recovery of the second quarter must get more muscular in the second half of the year.
