When two things are in stark contrast to one another, they could be said to be contrary, or, in contraposition. For example, here are two news items juxtaposed to demonstrate my point.
- Wall Street stocks and the dollar slipped on Wednesday as government data signaled the U.S. economic expansion was slowing, while gains in the euro prompted a pullback in European stock markets.
- The euro climbed towards $1.10 against the dollar on Wednesday and gained against most major currencies, helped by a robust survey of German business morale that added to signs that an economic recovery in the euro zone is strengthening.
Putting one next to the other makes the news seem incongruous, as if the two together don’t make sense. The “bad” news is that is that US economic data today shows, well, weakness, I guess. The good news is Europe is healing.
- U.S. stocks fell in choppy, tight-range trading on Wednesday, with indexes reacting to moves in currency markets and to a gauge of industrial orders that unexpectedly fell last month.
Yet, this always happens throughout the year. It is so common that one has to wonder why anyone really cares in the moment. Does weak economic data in the moment really signal a lackluster economy 6-9 months down the road? Or, is it just another blip in the constant stream of economic data we are fed? Does it matter that the signs for Europe gathering economic steam are showing up?
Markets are the same everywhere. In Europe, market players succumb to the same herd-like mentality that often flies in the face of reality. How is it that as the European economy is starting to perk up and the euro begins its comeback, the European markets falter? Doesn’t it seem that 6-9 months from now, the European economy will be in much better shape, given QE and such?
- JPMorgan economist Michael Feroli said on Wednesday he downgraded his outlook on U.S. growth in the first quarter after a surprisingly weak report on domestic durable goods orders that showed a 1.4 drop in February.
And he we are, the is market looking for a reason to back away from “overstretched” valuations. Well, contrariness aside, the reality is the market is doing the right thing, at the moment. Yes, it is a bit extreme, but that is the unseeing chasing the animal in front of it, simply because the animal in front of it is chasing the animal in front of it.
Eventually, though, the market will settle down to a fair rebalancing, a coming to terms with itself and corporate earnings. So, let’s wait to see how those shape up, relative to valuations and then we can decide if the market is being fair or not. In the meantime, keep your eye on the price of oil (as if it were possible to not see what is going on there), as that is a fundamental that has the potential to shape the next 6-9 months more than any other, more than likely.
- Brent oil prices pared gains sharply on Wednesday after data showed U.S. crude stocks jumped to a new record last week, overshadowing weakness in the dollar.
For now, stay the course, wait, watch, and remove the temptation to believe that what the market is doing now is truly representative of what the market believes.
Oh, and if you are so inclined, check out the article below. Given the current market, you might find it interesting.
Trade in the day; invest in your life …
