I get it now. I did not see it yesterday, but I do now. The market is in official “freak-out” mode and yesterday was the beginning. Now that it has begun, the summer-time market will follow through, I suspect. All it needed was the Chicago PMI collapsing in July.
- The index dove to a reading of 52.6, which was well below the consensus expectations for a reading of 63.0, as well as last month’s reading of 62.6.
As well, perhaps less significantly, the small rise in weekly unemployment claims (23,000) probably added some fuel to the fire. Yet, neither of these indicators is strong enough to pull the market down so hard by itself and together they are not so bad in context.
- In spite of the sharp decline this month [Chicago PMI], feedback from purchasing managers was that they saw the downturn as a lull rather than the start of a new downward trend. This was especially so given the recent strong performance and the fact that Employment managed to increase further in July.
Back we come to employment and what that means to the US economy and why the market is freaking out.
- The four-week average of claims, considered a better gauge of labor market trends as it irons out week-to-week volatility, fell 3,500 to 297,250, the lowest level since April 2006.
- Despite the increase last week, claims remain at levels consistent with strong job growth.
As is the case with the market some times, good news seems to be bad news, especially for this summer-time market. Simply, as the economy improves, the Fed makes more noise about raising interest rates, which it did yesterday, which helps explain the market movement yesterday and today.
So, here it is. The Fed wants to see more inflation related to job growth before it officially announces when it will raise rates. It is now seeing the beginning of this.
- Other data on Thursday suggested a long-awaited acceleration in wage growth was imminent, with labor costs recording their largest increase in more than 5-1/2 years in the second quarter.
Now the above is good news, if you have a job, a family to support, and you are invested in the market long term. It is bad news only if you are of the investment type that believes raising interest rates will crash the economy and the market. Apparently, there are enough of them working this summer to give us today’s market.
Economic happenings across the pond, another reason the media has suggested the market is tanking, point to a mixed bag of short-term economic data, just as it is here in the US. One needs to keep any eye on the trend, though, and the trend in Europe is positive.
- The unemployment rate in the euro area fell in June as the currency bloc gradually shakes off the legacy of the region’s debt crisis and longest-ever recession.
- Eurozone bond yields keep falling, with Italian and Spanish 10-year debt yield both hitting record low of 2.625 percent and 2.451 percent respectively.
Yes, it is a drag to see all the hard market work wash away in a summer-time storm, a gully washer if you will, but it happens. When the market is not fully convinced the economy is getting better, when the media pushes stories about the overvalued market, when the media fills its talking-head space with celebrity analysts who tell us the market is doomed, when the chart technicians tell us the market patterns are eerily similar to the 1929, 1987, 2000, and 2008 crashes, and when geopolitics are focused on stupid people killing stupid people, the market will find a reason back off.
Finally, backing off isn’t always a bad thing. Doing so allows market players to reassess and it allows the market to consolidate, to build a new, stronger floor from which it can climb further.
Anyway, it is not all bad news out there today. At least here in the US, our politics often are stupid, childish, and often irrational, but sometimes the politicians actually do the smart thing, the adult thing, and the reasonable thing.
- Republicans have no plans to begin impeachment proceedings against President Barack Obama, House of Representatives Speaker John Boehner declared on Tuesday,
Yup, just go with the flow today and we will see what happens tomorrow.
Trade in the day; invest in your life …
