The October rally in the S&P500 large-cap index is still alive, and struggling valiantly to get back into positive territory for the year. We think the index will succeed to the extent it ends the year green, although probably not by much.

But while the stock market may be recovering, it isn’t the real economy. It floats above the harsh facts of the real world like a mirage built of equal parts manipulation and hope. In the world where most of us live, the market just doesn’t reflect what happens every day.

Here are a few observations that emphasize the differences between Wall Street’s optimism and Main Street’s discontents:

  1. Nobody can afford to buy a house. Even with low, low, low interest rates, by one estimate more than 80% of Americans could not qualify for a conventional mortgage. Many can’t keep up with their existing mortgage; in October bank repossessions went up 31%,
  2. So kids are moving back in with Mom and Dad: 36% of young working-age women and 42% of young working age men are living with their parents, because …
  3. Young adults can’t find decent jobs. Or any other kind of jobs. The last payroll report, greeted with glee on Wall Street, showed 271,000 net new jobs created in October. But virtually all of those jobs went to workers aged 55 and over – not because they won’t stop ‘till they drop, but because they can’t afford to retire. Meanwhile …
  4. The prime working age cohort, age 25 to 54, actually lost 35,000 jobs in the October Payrolls report. Males in that cohort lost 119.000 jobs.
  5. People without decent jobs don’t buy stuff. So retail sales are sluggish, a niggardly 0.1% increase in September. Macy’s sales in the last quarter were down 5% year-over-year. Wal-Mart, whose stock is still holding up, is projecting as much as 12% lower sales next year, and is closing 40 stores. Remember that the US consumer makes the US economy work … when she has money to spend.

Sooner or later, reality catches up to the market and bites it in the EPS. When the earnings per share are crashing, stock prices can’t soar, no matter how much companies spend on stock buybacks or how enthusiastically the Plunge Protection Team bangs the close.

We are not bears. We think the market goes higher in the intermediate term. But right now there’s a lot that can go wrong, and if/when it does, there won’t be a lot of time to react. So be nimble, be cautious, and be alert. This is a time to protect your nest egg, not scramble it.

Today

The Fed Open Market Committee minutes are released today and precisely one month later the Fed will make its interest rate announcement. Just in time for Christmas.

The S&P500 mini-futures (ES) rallied after the open Tuesday, but gold tanked below major support, and there were more terrorism threats from Europe. Despite the early promise the ES closed with a very modest one-point gain over Monday’s close.

Until the FOMC shares its secrets at 2 p.m. the 2056-55 area will be the price zone to watch.

Break above it, and we may get up to Tuesday’s high at 2063.75 or higher to 2069-75. Break below it and move past 2037.50, and we may see a retest of Monday’s low.

The October rally in the S&P500 large-cap index is still alive, and struggling valiantly to get back into positive territory for the year. We think the index will succeed to the extent it ends the year green, although probably not by much.

But while the stock market may be recovering, it isn’t the real economy. It floats above the harsh facts of the real world like a mirage built of equal parts manipulation and hope. In the world where most of us live, the market just doesn’t reflect what happens every day.

Here are a few observations that emphasize the differences between Wall Street’s optimism and Main Street’s discontents:

  1. Nobody can afford to buy a house. Even with low, low, low interest rates, by one estimate more than 80% of Americans could not qualify for a conventional mortgage. Many can’t keep up with their existing mortgage; in October bank repossessions went up 31%,
  2. So kids are moving back in with Mom and Dad: 36% of young working-age women and 42% of young working age men are living with their parents, because …
  3. Young adults can’t find decent jobs. Or any other kind of jobs. The last payroll report, greeted with glee on Wall Street, showed 271,000 net new jobs created in October. But virtually all of those jobs went to workers aged 55 and over – not because they won’t stop ‘till they drop, but because they can’t afford to retire. Meanwhile …
  4. The prime working age cohort, age 25 to 54, actually lost 35,000 jobs in the October Payrolls report. Males in that cohort lost 119.000 jobs.
  5. People without decent jobs don’t buy stuff. So retail sales are sluggish, a niggardly 0.1% increase in September. Macy’s sales in the last quarter were down 5% year-over-year. Wal-Mart, whose stock is still holding up, is projecting as much as 12% lower sales next year, and is closing 40 stores. Remember that the US consumer makes the US economy work … when she has money to spend.

Sooner or later, reality catches up to the market and bites it in the EPS. When the earnings per share are crashing, stock prices can’t soar, no matter how much companies spend on stock buybacks or how enthusiastically the Plunge Protection Team bangs the close.

We are not bears. We think the market goes higher in the intermediate term. But right now there’s a lot that can go wrong, and if/when it does, there won’t be a lot of time to react. So be nimble, be cautious, and be alert. This is a time to protect your nest egg, not scramble it.

Today

The Fed Open Market Committee minutes are released today and precisely one month later the Fed will make its interest rate announcement. Just in time for Christmas.

The S&P500 mini-futures (ES) rallied after the open Tuesday, but gold tanked below major support, and there were more terrorism threats from Europe. Despite the early promise the ES closed with a very modest one-point gain over Monday’s close.

Until the FOMC shares its secrets at 2 p.m. the 2056-55 area will be the price zone to watch.

Break above it, and we may get up to Tuesday’s high at 2063.75 or higher to 2069-75. Break below it and move past 2037.50, and we may see a retest of Monday’s low.

After the FOMC minutes come out, the market could do any fool thing. Stand back and watch.

Major support levels for Wednesday: 2030.50-32.50, 2021.50-23.75, 2012.50-14, 2006-07.50
Major resistance levels: 2075-78.50, 2097-95, 2114.50-16.50

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Chart: ESZ5 mini-futures.  Daily chart to Nov. 17, 2015

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