From the Greece accord today, to regulatory reform, to company forecasts, traders are no longer buying stocks on promises these days, but instead want action.
The S&P 500 is up more than 50 percent since its March low last year on the belief that we would get new government policies to contain excessive risk-taking, strong sales growth and a European Union plan to keep a global debt contagion starting in Greece contained. We haven’t seen any of that yet and so now the market is in a show me state.
“The market gave everyone a free pass for a long time because valuations were completely out of whack on the downside because of the credit crisis fears,” said Guy Adami, Drakon Capital managing director and former trader for CIBC and Goldman Sachs. “But now we’ve gone from ‘buy first, ask questions later’ mode to sell until proven otherwise.”
Adami, also a ‘Fast Money’ panelist, points to the horrible price action in technology stocks following their strong 2010 forecasts last month as the first time he realized this phenomenon was over.
In fact, according to the stellar research folks at Bespoke Investment Group, 22 percent of technology companies in the S&P 500 raised their guidance during this earnings season, the most of any sector. Yet, technology is the worst performing group in the S&P 500 in 2010, after being the best in 2009. Investors do not want optimistic forecasts any longer, they want results.
- US, Europe Will Default: Marc Faber
- Poll: What Should the EU Do?
Overnight, the Euro rallied ahead of today’s European Union summit on expectations the conclusion would be a concrete plan to bailout Greece from default and contain a growing contagion among nations like Portugal and Spain. Instead, investors got an accord, but no exact details on how Greece’s monstrous debt load will be contained. As soon as the Euro reversed lower today, so did European and U.S. stocks.
Senator Christopher Dodd said today that he is prepared to work on a bipartisan solution to regulatory reform, yet the financials fell today. Capital will not move into banks any longer until the reform are clear, traders said.
One thing we did get some clarity on yesterday was interest rates. Federal Reserve Chief Ben Bernanke began, in written testimony to the House Financial Services Committee, outlined his plan for tightening credit and raising rates. Bond yields responded in kind and so did investors like Karen Finerman, President of Metropolitan Capital Advisors.
Karen is more confident now in her bets on lower Treasury prices and higher yields. The regular investor can get this exposure through the ProShares UltraShort Lehman 20+ Years ETF. Finerman is also buying shares of branded apparel maker Ralph Lauren.
“The companies with pricing power: ones that can raise rates more than costs and more than competitors” will benefit in a rising rate environment, said the hedge fund manager.
She finally got clarity on something.
For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.
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