The Bull Market About To Take A Rest (AAPL)(GS)(GM)

A great deal has been made about the Nasdaq going from being down 25% for the year to being up for 2009. The furious rally might continue, but it probably won’t. That is not because the economy is continuing a sharp slide. It is because the stocks that have pushed the market up have gains too stupendous to hold.

In the tech sector, shares of Apple (AAPL) are up 30% this year. Even with its increasing market share in the PC business and the growing success of the iPhone, there is almost no analyst who thinks that Apple will do well in the first half of the year. The economy is too weak. Competition in the smartphone business is getting more vicious. Overall consumer electronics sales are down too much. Even the Apple brand cannot overcome all of that.

The shares of Goldman Sachs (GS) are up almost 30% year-to-date. Goldman’s earnings may be better this year than they were in 2008. But, analysts know that the bank holds positions in commercial real estate and that its proprietary trading, M&A, and underwriting business have not come back due to market conditions. That may change but it will not change in the first half of the year. Economic conditions are still too ugly for corporations to raise much money or move back into the market to buy other companies. The fees from those businesses will be too low to help Goldman earnings.

GM’s (GM) stock is up 30% in 2009. There is increasing hope that the company will not go bankrupt. That will be largely offset by a tremendous dilution of current shareholders as creditors convert their debt to equity. As recently as this week, GM told the government that it will have to revisit its business plan for the rest of the year. Light vehicle sales are not likely to recover at all in 2009. That means that GM’s revenue projections were too optimistic. Government aid may not offset the huge losses that falling sales will bring. GM may be back talking to the Administration as early as mid-year.

The market is up 20% or better since the first day of the year. The stocks that helped take it there are tired.

Douglas A. McIntyre