Was the Hurricane Watch Overhyped?

Irene or Dow Jones?  Which hurricane are we talking about?  Obviously, if you are in a flooded area this morning, or your power is out, or a tree fell across your house, you don't think that Irene's warnings were overhyped.  But from an overall standpoint, you have to say that yes, the politicians, the Weather Channel and the media had a field day, and that from an "historic" perspective, the description of overhyped is appropriate.

Dow Jones?  Here we go again.  We had that "hurricane" last year as the Double-Dippers "grossed" us out with their droning on and on that the old growth economy was sinking under the weight of the debt, etc.  Then one year later, just five weeks ago, here they came again.  "This is historic," they warn us.  They are screaming, and the echoes of their screams take on special volatility as the investing public has left the floor leaving the computer trading with the floor to itself causing stampedes first in one direction and then in the exact other direction.  They love hurricane warnings, since they make their money selling volatility.

But if you are Bank of America, you probably agree this morning that this is an "historic" disturbance.  Most banks caught that flu along with BAC.  Nobody is saying they enjoyed the heavy rain of the last five weeks, but it has gone a long way from fitting their description as being historic and/or bull killing.  And when you look at the corporate earnings that continue to surprise - quarter after quarter after quarter - you have a hard time believing that the "Old Normal" has been replaced with a "New Normal" of low growth.  The stock market has also continued to reward growth.  At a time when it is so easy to tell investors to buy those slower-growth, but higher-dividend paying stocks, the stock market itself is giving a different message if you step back and look at the progression.

For example, Ed Yardeni pointed out on his blog last week why investors have been rewarded by mid-cap stocks in recent times, which you can see in the chart below.  Mid-cap stocks grow faster, and the chart below describes the growth of earnings for the three classifications of the S&P indices.

Click on image above to view larger chart.  Source: blog.yardeni.com

So here we are, waiting on the torrential rains to subside.  We remember the rains of last year, and even though the real panic reached a peak before the rains reached their peak (in late May), we found the rains cleared the air and allowed for an overhead vacuum that the stock market moved up into in the ensuing six months.

Click here to read today's complete Market Comment.

Don Hays

Please see important disclosures at the bottom of this page.