There is a term sailors use to describe slow hot days on the water with no wind: The Doldrums. The term was coined by 18th century sailors who found that the area of ocean circling the earth just north of the equator is typically close to impossible to sail through because of the hot and windless conditions. These areas of ocean are notorious, even to this day, for trapping sailboats for days, or even weeks. It’s not the Bermuda Triangle, but it is a historical area and term that is used to describe a frustratingly slow and listless situation; the same might be said for the current state of the U.S.markets, and moreover the entire breadth of the U.S. economy.
In Patrick O’Brian’s novel, Master and Commander (which was later turned into a movie starring Russell Crowe), Captain Jack Aubrey and his British Naval vessel lose contact with the French frigate they are tracking to destroy because Aubrey’s ship becomes stuck in The Doldrums. Things become so bad that the crew of the ship is convinced they have a cursed officer on board – after weeks of hot weather and no wind the officer eventually ends up believing the curse and commits suicide. While O’Brian based this book on early 18th century naval warfare, the scene of Aubrey’s ship stuck in The Doldrums seems to echo in reality this summer, especially with the oppressive weather we’ve seen on the east coast.
For the past 30 days, the First Coverage Market Sentiment Index has slipped 4.59 percent to 55.4 points, continuing its fall this summer towards bearish territory. While many people already believe we are in a bear market, our indicator is still in bullish territory, but may not be for much longer as August is shaping up to likely be a slow month for traders.
What Will August Bring?
It’s common knowledge that August is typically slow for traders because the majority of individuals try to get away for their summer vacations during the month. Overall, July was a positive month for U.S. equities, but not by much because bad economic news outweighed decent earnings reports. There are still a good deal of earnings reports due out in early August, but there is also more dire economic news on the horizon. Most importantly the July Unemployment Report, which will likely show what everyone expects – continued high rates of unemployment and more evidence of a stalling American economy. While the market seemed to take the Q2 GDP numbers in stride in late July, seeing that GDP growth slowed in Q2 to 2.4 percent from 3.7 percent in Q1 does not help boost investor confidence.
For the majority of the spring and summer, we’ve mentioned in this column that with so many economic balls in the air, it’s hard for investors to feel confident. Further, so much bad global news, from the oil spill, to Afghanistan, to the Euro zone crisis, hasn’t helped investors feel any better. Fed Chairman Ben Bernanke echoed this sentiment on August 2nd, telling a group of state legislators that the U.S. economy is improving but still has a long way to go. Bernanke said, “We have a considerable way to go to achieve full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure, and lost savings.”
Many are referring to this summer as the lost summer, and some are already referring to the next decade as the lost decade because of the sheer volume of bad economic news that is looming.
The Good News?
The good news is that compared to First Coverage Sentiment Index numbers from August 2008, the current First Coverage numbers don’t seem to be pointing towards another market crash – which is what we saw shortly after August 2008. In fact, sentiment numbers in August of 2008 drifted as low as 49 points; the FC Sentiment Index is still hanging in there at 55 points, currently. The good news is that another fall market crash is most likely not on the horizon; the bad news is that much like a sailboat in The Doldrums, this market doesn’t seem as if it’s likely to pick up speed anytime soon.
Roland Beaulieu is the CEO and President of financial research firm First Coverage, based in Boston. Beaulieu and First Coverage can be reached at info@firstcoverage.com For further information about First Coverage please visit http://www.firstcoverage.com/
