The Big Picture for the Week of December 26, 2004

For several weeks now I have written, and said in every interview I have done, that I expected the US market to rally into the year end because many investment managers would need to play catch up to the post election rally that started before the election. Since the day after the election the SPX is up about 7%.

Before the election I thought there would be no trend changing rally because there was very little precedent for such a move. I was wrong. The catch up rally has been correct. I can't imagine that the trend will change this week. At worst this week would be flat, but we'll see.

At this point it makes more sense to think about the next few months. I have devoted a lot attention on this site to potential risks that confront the market; weak dollar, deficits, slowing earnings, slower economic growth, rising rates, and so on. This is not a bearish outlook type of article but more of a know what can go wrong posting. If things start to go poorly for US stocks, because of any of the things I mentioned or for some other reason, I would expect a slow rolling over of the market as that is how bear markets usually start.

It also makes sense to have exposure to things that will benefit from the things that might cause a bear market. Oil might cause a problem so I continue to overweight the group. The dollar could be a real speed bump so I continue to be overweight foreign stocks that pay high dividends. New readers can look through the archives of this site to see other themes I think will work now.

Occasionally I comment on something positive or negative I see on stock market TV programming. One of my least favorite TV regulars is Joe Battipaglia. Based on his public commentary, which is the only track record I know about, I think he is dreadful. I have been critical of him before because of his propensity to pick mega cap stocks. I don't think someone that always touts the largest companies if offering any real insight. Maybe Joe has insight but maybe he doesn't. This week on Bulls and Bears Joe managed to tout four of the 17 US companies that are larger than $100 billion; Citigroup, General Electric, Johnson & Johnson, and Pfizer. Over the last year 11 of the 17 mega caps have lagged their respective sectors. Giant companies tend to lead at the end of a bull market, as they did in 1998 and 1999. Joe might be correct now for all I know, but he has been touting the same names for years which gives him only a broken clock's chance.

Regular readers will know I have been negative on Pfizer for many months. This past week it had a nice snap back rally. That rally may continue, but it will do so without me. The reason for my ongoing bearishness, even without the Celebrex problem, is that I don't think its pipeline can possibly create enough new drugs to offer a reasonable growth rate to a topline of $52 billion.