The market is up today after yesterday’s drop. So, what else is new? This seems to be the current pattern, as each day is dependent on the market’s view of the Fed’s thinking, or so we are told.
- Stocks opened modestly higher on Thursday as the latest economic data indicated that central bank stimulus measures would remain intact.
Okay, so how does the market intuit what the Fed is thinking based on the current economic data? For the record, which data is that? Is it the US GDP report?
- The government’s first revision to the nation’s GDP for the first quarter of 2013 shows the economy’s grew at a rate of +2.4% during the January – March period. This was slightly below Wall Street expectations for a growth rate of +2.5% as well as the initial reading of +2.5%, but well above the fourth quarter of 2012’s growth rate of just +0.1%.
The US GDP drops one-tenth of one percent and the market thinks this is enough to conclude that in 6-9 months the Fed will continue easing? Sorry, but I ain’t buying it. The market has no clue as to what the Fed will do in 6-9 months, so is it just speculation? Again, I think not.
If the market is looking out 6-9 months, then it must see the economy improving from where it is right now – 2.5% GDP growth, give or take — and this would be the reason the market keeps coming back after some profit taking on fear. It believes in the future, despite what the media tells us about the Fed and other central banks.
A point to ponder, though … the US economy has not felt the full brunt of the spending cuts in place for this year, some $85 billion on top of the cuts already made. Will the remaining cuts actually dramatically lower GDP as government analysts say? I don’t know, and neither does the market, which might explain some its vacillation about the future. We will see, but my guess is the cuts coming will not dramatically lower GDP, especially if the consumer keeps on spending.
- Analysts expect the big Memorial Day weekend to have helped boost the monthly U.S. sales tally for automakers to the best level in 6 years as the allure of energy efficient models and easier credit terms helps to motivate buyers.
No matter what I speculate, or the analysts speculate, one thing we can always do is follow the money, and money is moving, as I have been saying.
- U.S. money management firms increased their holdings of stocks in May for the first time in four months
- European fund managers were the most overweight in equities in more than two years in May and cut bonds and cash as they grew confident central banks would keep supporting economic recovery.
Okay, so we are back to the central bank stuff again and, again, I ain’t buying it. Money is moving into equities because as soft as the economic picture is, it is backlit quite brightly. Some 6-9 months down the road, Japan, China, Europe, and the US economies will be doing better, and the money is backing that up.
One thing to watch in the near term, though, is the Nikkei. Up until the recent sell-off, the market had risen some 70% in a short period. Expect more selling until that market comes back into balance, but don’t give up on it.
- A late sell-off in an already weak market caused the Nikkei to close -5.2%, taking the index’s losses since the volatility began late last week to over 14%.
A 14% drop still leaves the Nikkei some 56% to the plus side. There is still some room to slide, but too much room to make any difference in the long run, as Abenomics is at work and it seems to be working, at least that is what the money says.
- British investors threw their weight behind Japan’s pro-growth economic recovery plan in May, raising their investments in Japanese stocks to the highest level in more than a year.
Forget about the Fed and the breathless media continually singing this song. It is what it is and the market knows what it is – the Fed will ease off easing when the economy warrants it, and when that happens, it won’t make much difference anymore.
Trade in the day; Invest in your life …
