Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
U.S. stocks fell again today, with the S&P 500 (SNPINDEX:^GSPC) down 0.3%, while the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) lost 0.2%. August has not been kind to stocks so far, with the S&P 500 managing to post gains on just one-third of the trading days so far. Meanwhile, the Dow just closed out its worst week of the year.
Despite this, the CBOE Volatility Index (VOLATILITYINDICES:^VIX) fell 2.4% today, gnawing back part of yesterday's spike. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
This "confidence game" looks overplayed
Earlier this week, I highlighted the latest results of the BofA Merrill Lynch Fund Manager Survey, which suggest that money managers' animal spirits have surged over the past month. To cite just one figure: A net 72% of respondents said they now expect the global economy to pick up over the next 12 months -- the highest reading the monthly survey has recorded in nearly four years, and a stunning 20 percentage point increase from July.
However, while the professional investor class may feel increasingly positive, sentiment among U.S. consumers appears to be headed in the opposite direction, if this week's results from leading retailers are anything to go by:
- On Wednesday, Macy's reported results for the quarter ended Aug. 3, missing expectations on earnings per share and revenues. Management reduced earnings guidance for its full fiscal year.
- Yesterday, Wal-Mart Stores (NYSE:WMT) missed expectations with regard to its second quarter earnings per share and revenues. The company lowered earnings guidance for its fiscal year ending in January 2014.
- Kohl's, also reporting on Thursday, actually managing to meet Wall Street's expectations for earnings per share; however, the company gave a forecast range for third-quarter earnings that was below the analysts' consensus estimate.
- Finally, upscale retailer Nordstrom reported on Thursday afternoon, and while it beat its consensus earnings estimate for second quarter... drumroll... the company brought down its full-year guidance earnings per share.
Talk about a horrible run for retail! Unfortunately, the sobering outlook these companies advanced is consistent with the decline in the Thomson Reuters/ University of Michigan consumer sentiment index this month to a four-month low (although, to be clear, July's reading was at a six-year high, so we're not talking about a collapse).
More broadly, this spat of data is suggestive of another episode in this halting, "stop-start" recovery, which continues to struggle to gain any significant traction. As Cisco Systems CEO John Chambers told investors on Wednesday: "Last quarter, I described a continued slow recovery. This recovery is more mixed and inconsistent than others I've seen."
Are money managers seeing something the rest of us are missing? Possibly, but I can't help but be concerned that this year's stock market gains have run ahead of the fundamentals. Unless we get another batch of positive economic data -- or the Fed puts off the tapering of its monthly bond purchases -- expect a pick-up in volatility through the end of the year.