In with the new out with the old. This is the natural flow of the multiverses. Change is inevitable and our world is changing. A new technical paradigm is upon us, the New Economy is firmly rooted.
- Apple, the largest U.S. company by market value, will join the storied Dow Jones industrial average, replacing AT&T, in a change that reflects the dominant position of iPhone maker in the U.S. economy and society.
The above is an example of the market understanding this reality, but, now get ready for a quick shift …
- U.S. employment accelerated in February and the jobless rate fell to a more than 6-1/2 year low of 5.5 percent, signs that could encourage the Federal Reserve to consider hiking interest rates in June.
Here is the question: Will the market see yet another stellar employment report as good news, or should we believe that because the market dropped on the news, it sees it as bad? On the surface, one would think that the market dropping today after the stellar employment report came out and the unemployment rate dropped to 5.5%, the lowest it has been since mid-2008, just before the hole in the boat appeared, means the market thinks it bad.
Okay, it is a rhetorical question, for sure. Of course the market likes the news on jobs. After all, jobs are the life-blood of the market, as more jobs leads to higher corporate profits, and that is what the market feeds on, ultimately – higher corporate profits.
Yet, and to be sure, the market is down today.
Okay, so we have the usual market head fake, then, because even as the equity market goes down, the money is flowing into the US Treasuries and the US dollar.
- The dollar rose to an 11-year high against the world’s major currencies and U.S. bond yields jumped on Friday, as U.S. jobs figures reinforced expectations the Federal Reserve will push ahead with its first rate hike in almost a decade.
This is not necessarily good news for American products and US multinational corporations, but certainly good news for the Europe and Japan, as well as good news for the US consumer, as a higher US dollar puts more pressure on the downward price of oil.
- European stocks rose on Friday with shares in stainless steel producers surging after news the European Union was set to impose anti-dumping duties on imports from China and Taiwan.
Okay, so European markets got some other good news as well, but don’t underestimate the powerful influence today’s employment news and its rippling have on the potential for Europe to emerge from its long slumber.
Yes, there is long-term light for the market, but, then again, in the short term, we still have misguided ideologues in Washington who will try to punch a hole in the just repaired ship of state.
- Congress is expected to face another contentious debate over raising the U.S. legal borrowing authority, which is due to expire on March 15. If it stretches to the final deadline, the timing would coincide with the debate over government agency funding for the new fiscal year, which starts Oct. 1.
It appears a perfect storm is coming this fall, which means this summer, we could have another season such as the one we had back in 2011 when the dodo-heads went about shutting down the government because they don’t understand the simple reality of paying debts already incurred.
In any case, today the market is playing out the breathless media’s story that somehow raising rates is a bad thing for US equities. Over time, however, much like the ideologues mentioned a moment ago, the market will come to its senses and realize that a normal interest-rate environment is a healthy lifestyle for the market, one that will sustain its growth and allow it to flourish for several more years.
Trade in the day; invest in your life …
