As expected, after the head rush from the market’s rise yesterday, the bulls relaxed and the bears came to play today.
- U.S. stocks rose on Wednesday, with the S&P 500 ending at a record after the Federal Reserve hinted at a slightly faster pace of interest-rate increases starting next year, but suggested rates in the long run would be lower than it had indicated previously.
Hitting 17,000 on the DOW and 2,000 on the S&P 500 will take some time. The market is a bit overbought now. It will need to catch up to itself, meaning, we will see some decent selling here and there to get the balance right.
No worries, though, even if you hear the celebrity analysts and the talking heads telling the world a severe market correction is coming.
- Remember all the “Sell in May” talk we heard a couple months ago? Remember all the predictions of a severe correction that was going to happen in the second quarter? Remember all the talk about the second year of the Presidential Cycle?
Why would the market severely correct? Maybe if the Middle East explodes or Russia tries to take over the world, the market will blow up as well, but, short of that, the combined US and global economic data points to a market climbing higher, much higher over time.
This is not me talking pie-in-the-sky. No, The Conference Board, that widely respected non-profit that researches and tracks global economic data and then reports that data in economic indicators, reported today that the US ship of economic state is still sailing forward and picking up steam.
- Recent data suggest the economy is finally moving up from a 2 percent growth trend to a more robust expansion. The CEI shows the pace of economic activity continued to gain traction in May, while the trend in the LEI remains positive.
And so it goes, and has gone now for years. The doomsayers predict, well, doom, and the US and other big economies keep on trucking, which keeps the market not just afloat but floating higher. Again, why would this change? Anyone have a good reason?
- The American Institute of Architects (AIA) reported that the Architecture Billings Index [ABI] was 52.6 in May, which is up from last month’s reading of 49.6 . The New Projects index was reported at 63.2, up from last month’s 59.1.
I find the above interesting and helpful to understanding the market, given that spending money on commercial building projects is a prime source of employment not just in the US but across the globe. Given the ABI (a leading economic indicator) looks at nonresidential construction spending activity 9-12 months out, the signs are good that more money will end up in consumers’ pockets.
More jobs more money is a good thing, given the recent inflation data. Food and gas cost more money.
- Gasoline in the U.S. climbed this week, boosted by a surge in oil, and is expected to reach the highest level for this time of year since 2008.
Both are directly related to the cost of oil, which is remaining stubbornly high and if any fundamental could send the economic ship off course, it would be a sudden surge in the price of oil, which brings us back to the Middle East and Russia as potential spoilers.
- Crude prices are firm as fighting in Iraq continues and the API reported a much larger than expected draw in U.S. crude oil inventories in last night’s report.
Tis the summer (and winter depending) driving season across the globe after all, so one would expect higher gasoline prices now. We will just have to wait to see if they come down after the traditional Labor Day end to the driving season. As to the inflation, well, 2% or so is right in line with what the Fed (and many economists) believe is healthy for a growing economy, and that is just about what it is now.
Finally, here is a thought to ponder. I am not sure I understand the sentence below, which means I don’t necessarily agree with it, but every time I read it, I think it should mean something important.
- The hardest trade is most often the right trade, as humans are programmed to lose money as traders.
Does this mean human traders are necessarily bad traders? Wow! I need to retire.
Trade in the day; invest in your life …
