Okay, so I suggested yesterday that Tuesday’s market move was a bit exaggerated for both the current climate and the “news” about the Fed.
- I must admit, the buying that happened yesterday seemed a bit stronger than warranted.
The lack of follow-through yesterday (even after the FOMC notes came out with the language the market supposedly likes to hear) suggested a soft bullishness, a lack of real commitment, which led me to another statement I made yesterday.
- I am bored with the market again. It lacks any real energy.
So, today, I wake up to a market that is spitfire full of energy. Right out of the gate, the market rushes at new record territory and I ask myself, “Why?” The Fed just stated it is in no hurry to raise rates and the market went “Yea!” and then fell asleep. No big party there. Maybe that Fed stuff is losing traction.
- Whether the Fed’s key interest rate starts to rise in March or July is kind of irrelevant. The market knows it’s coming sooner or later, and bond yields are going to inch higher between now and then.
As I have said, “Baked into the cake that is.” Channeling Yoda helps me focus. Putting that aside, here is just a bit more education on the reality of the market as it relates to a “thing” that the breathless media goes on and on about for some time.
- By the time a proverbial D-Day arrives it’s been so hyped up, any of the buying and selling that was supposed to happen after the news was announced has actually already been done. The only thing to do at that point is to unwind positions. It’s where the “buy the rumor, sell the news” axiom came from.
Buy the rumor, sell the news is what has been happening in this on and off market. A rumor about the Fed and the market buys. The Fed speaks and the market sells (more or less). Occasionally, though, in this Alice in Wonderland place, the market actually lapses into reality, which is what the market might be experiencing today – a lapse into reality.
- The current level of Initial Unemployment Claims is the lowest level seen since May 2007. The 4-week moving average of Initial Claims remains under 300K at 299,500, which is near the low end of the range seen since 2002.
I am not wholly suggesting the market is moving strongly today because of the weekly unemployment claims, but one must admit if the market cares about economic reality, then the news that the unemployment trend is steadily headed down to levels not seen in a dozen years might be a positive catalyst for the market, given that people working is the impetus for driving the US economy.
- At 33.4, the buying climate sub-index for the Philly Fed Survey shows some progress; it’s its best since mid-July and 1.7 points better than its 2014 average, 31.7. It’s 2.3 points off its average since 1985, 35.7.
True, the US economy has morphed into a service economy in the last thirty years or so, and manufacturing only provides 15-20% of all jobs, but the ripples that flow through the services sectors from a healthy manufacturing sector are huge. Manufacturers produce product, wholesalers and retailers buy and sell that product and banks help the companies who request the product be manufactured to grow, which provides jobs for accountants, bookkeepers, computer technicians, engineers, human resource personnel, customer service folks, financial analysts, marketing and sales people and on and on.
- The survey’s indicators for future manufacturing conditions reflect general optimism about growth in activity and employment over the next six months.
So why did the market get out of the gate strongly this morning? I suspect the “buy the rumor, sell the news” play is wearing thin and the lackluster finish yesterday after the FOMC notes told everyone the Fed is in no hurry to raise rates.
- Then on the heels of news from the Fed, stocks soared… but only for about an hour and a half. By the end of the day, the market was back to just a tad above breakeven.
Perhaps the market action yesterday suggested to the waiting investors (the real buyers) that the market would be amenable to good economic news, rather than seeing good economic news as bad because that meant the Fed would raise rates sooner rather than later.
Convoluted, yes, but nevertheless it is the way things are in the market. And this brings me to my reality. I don’t know if the market will hold on today, unlike yesterday, but if it does not, all it means is I am wrong about the market lapsing into reality for a moment or two. What it does not mean is the bearish undercurrent is taking over. Yes, the market might fall today, but every day it holds up within the range is another day of consolidation.
- I will remind you once again, however, I’m leaning bearishly because the calendar says we’re at what’s usually a bearish time of year. The still-overbought market only fans those bearish flames. What I’m really waiting on is the S&P 500’s break under 1980 before excluding a bullish outcome from all this mess.
Regarding the bearish calendar thing, the last five autumns suggest otherwise, and as far as the overbought market theme, well, the market is not as overbought as it was before the latest earnings, and to his point about the technical floor for the S&P 500 at 1980, well, at this moment it is some thirty points away. Sure, it can get there, but let’s see how it does at the new altitude first.
Trade in the day; invest in your life …
