Hugh Johnson
Hugh Johnson
Hugh Johnson OBEis a British author and expert on wine. He is considered the world's best-selling wine writer. His 1961 tasting of a bottle of 1540 Steinwein from the German vineyard Würzburger Stein is considered to potentially be one of the oldest wines to have ever been tasted...
ProfessionNon-Fiction Author
Date of Birth10 March 1939
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The stock market rally today is because we drove the market down to levels that were on the cheap side and when you get news like the leading indicators saying things are going to be good for the economy and profits, that attracts buyers.
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We got down too far too fast. You reach a level that attracts buyers.
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The price is down some, but it's clear that oil is at a level that raises serious questions about the U.S. economy and earnings going forward.
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The most important thing is that the stock market had declined to levels that were arguably undervalued, and that many aggressive managers also realized there was a great deal of pessimism.
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It has been a solid performance, but there's still a healthy level of skepticism because stocks aren't cheap right now.
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On the surface level it's a real simple story. Interest rates are rising and the outlook for the economy and earnings is darkening every step of the way.
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Long term interest rates are higher now than they were in the second and third quarters, and debt levels are higher too. Yes, consumer spending will continue to expand, but it will be slower.
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If there's no bounce, it's investors saying that the market has not reached a level that accurately reflects what's ahead for the economy and earnings.
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If you separate out all the sectors of the market, it's no longer the case that technology is the most overvalued sector of the market, health care and energy actually carry higher valuations than technology now. So we are starting to get the levels overall in technology that really make some sense. And interestingly enough, if you take it even further, if you go to the individual stocks, stocks like Sun, Cisco, Texas Instruments, Oracle -- great names, they're starting to get to levels which, again, don't call them cheap, but call them cheaper and interesting,
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When all of the markets around the globe simultaneously go down, that's the message. That's what you have to worry about.
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It was almost a sure bet that the Fed was going to raise rates in June. Now it's almost a sure bet, say 50-50 at least, that they won't move in June.
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These stocks are so extraordinarily overvalued, and a lot of debt was built up to buy them. Everybody became a believer and had to be on board.
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The stock market has been closely connected to the bond market in the last two weeks, and today's stabilizing interest rates is probably the No. 1 reason behind the gains.
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The stock market has become modestly overvalued and investors are using a variety excuses to take money off the table. I wouldn't be surprised if the current, corrective phase continues and the market declines another 5 percent.