Bulls received more data to support the soft landing scenario in the form of a retail sales report showing a 0.2% increase for August. While such a gain is nothing spectacular, it was higher than published expectations. Interestingly enough, the stocks that should have seen the most celebration, namely retailer shares, remained rather flat as a group, which tells us that actual expectations were probably closer to reality than published ones.
On a broader scope, today's equity session was a rather difficult read. I could not shake the impression that stocks wanted to go down. However, every time shares prices dipped, they were immediately bought. What value is seen by whomever is doing the bidding is a mystery to me. What I do know is that the path of least resistance for stocks is usually up, and a bit of compelling news... the catalyst I have mentioned so many times... is required to reverse the psychology. If the masses are, indeed, viewing the economy from a perspective that events will unfold as perfectly as seems is being priced into stocks, then the path from complacency to disillusionment will not be a pretty one. I anticipate that when prices finally break, they will break fiercely.
As ironic as it may seem, the recent clubbing of commodities, particularly of energy and precious metals, may be a sign that change is afoot, and that we may presently witness the big break in equities. For the time being, the drop in resource prices is being viewed as positive for equities. After all, raw materials are getting cheaper, which usually means profits go up. But one must take the analysis a step further and ask why prices are getting cheaper. If the decline were due to a sudden lack of scarcity, a la 1994, then the soft landing scenario would make sense. However, the problem of scarcity has not gone away. Rather prices are dropping due to a sudden decrease in demand, the result of either a liquidity crunch or anticipation of a recession or a bit of both. Neither of these situations is favorable for the profits of public companies.
Precious metals tried to pose some strength in the early part of the day, but cracked midday and eventual ended 2-3% lower. Likewise, the miners got knocked for 4%. As tempting as prices are at these levels, I am remaining patient. While I think most of the shakeout has occurred, it is likely that prices will base for some time before launching. As the basing process unfolds I will slowly rebuild my positions.