Worry never robs tomorrow of its sorrow, it only saps today of its joy. --Leo Buscaglia
One of the most confounding things about the stock market since the bottom in March 2009 is how often it continues to run up even though there seems to be an endless supply of negative news to worry about. Despite high unemployment, poor growth, political stalemates, European sovereign debt issues, poor consumer confidence and an exodus of individual investors, the Russell 2000 index of small-cap stocks is at an all-time high and the senior indices are within shouting distance of that level.
It has never been easier to make a bearish argument in the past few years, but those sucked in by the pessimists and skeptics have missed tremendous gains. If you have been looking for reasons to dislike the market, you have had plenty of pundits eager to help -- and you are poorer for it.
The general belief is that this market levitation hasn't been justified but is largely a function of the endless liquidity created by the Fed. All that cheap money has had few places to go but into stocks and that has provided a huge cushion for the market. It isn't running on fundamentals. It is running on the back of a printing press.
The bear's big argument now is that the Fed can't keep the printing press going forever. Combined by a push toward austerity, higher taxes and the very slow economic recovery, this market has too many headwinds to keep running. That's probably true. At some point, things will turn and go through a bear phase again -- but a huge amount of money has been lost the last few years trying to anticipate this major turn. There isn't any easy way to time it.
My advice is to avoid the whole game of anticipation. It is a good idea to understand and appreciate the bearish case but a mistake is to act on it before there is any real proof that the market action is turning.
Like most advice, it is a lot easier to give than it is to follow. I constantly have to battle my inclination to be less positive. I see and encounter so many economic negatives on a daily basis that it makes it hard to understand how stocks can keep on rising. It seems obvious that a day of reckoning will come, but it has been a huge mistake to look for it every day.
Now that we are past the artificiality created by the start of a new year and the craziness caused by the fiscal cliff, the market should provide evidence of the next phase. Earnings will be the immediate factor but, already, the debt ceiling is causing concern.
Technically, the indices are in good shape and there is no obvious reason to be bearish. They are a little extended and could use more consolidation, but there is underlying support and buying momentum at work.
As always, the bears have compelling arguments, but ignore them until there's an actual change in price action.