Big Trouble for the Little Man

Bullion Vault

If this is a green shoot, it must be a weed…

WOO-HOO! The U.S. STOCK MARKET just racked up its biggest quarterly advance since 1998, cheers Eric Fry in the Rude Awakening.

The Standard & Poor’s 500 Index soared more than 15% between March 31 and June 30, lifting its year-to-date performance marginally into the black, and breaking a streak of six consecutive quarterly declines for the S&P 500, the longest since 1970.

But this champagne-cork-popping performance obscures a few trends that should be worrisome to the celebrants…
The S&P 500 has gained no ground whatsoever since May 8, the first trading day after the Federal Reserve triumphantly announced the results of its banking sector “stress tests”;
The BKX Index of financial stocks has DROPPED more than 16% since May 8. As we have noted before, the finance sector has been leading the overall stock market – both up and down. So this sluggish performance of the BKX Index is probably not a “nothing”;
Most gauges of investor sentiment – like the VIX Index of option volatilities – are flashing readings of extreme investor optimism. Typically, as contrary indicators, such readings presage a market selloff.
But even if we were oblivious to all of these “inside baseball” stock market indicators, we would find plenty of reasons to worry about the near-term prospects of the US stock market.

This week’s headlines, alone, offer ample evidence that something is rotten in the state of the US economy.

For starters, the Office of the Comptroller of the Currency announced a troubling jump in “prime mortgage” delinquencies during the first quarter. Secondly, the S&P/Case-Shiller Index of home prices continued to slide, both year-over-year and month-over-month. (But the rate of decline is slowing, we are told, which apparently means that the housing market is “bottoming”. We’ve been hearing these pronouncements almost every month since the housing market peaked in 2006). Lastly, the Conference Board disclosed that consumer’s are feeling blue once again. Consumer sentiment dropped sharply from the prior month.

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