Light volume and high volatility are the hallmarks of the market since late May. I have discussed the reasons for the light volume (buyers waiting to buy on dips, the rest just waiting) and the volatility (the breathless media gone stupid about the Fed). The bottom line is that none of us can do a thing about this market reality, so we just have to accept it and move on.
As “smart” as that sounds when I read it back in my head, it is not likely. The reason is that no matter how stupid something is in the market, if it is having an effect, it is real. Perception is reality in the market.
Now, when reading the above back in my head, it doesn’t make sense either. First off, understand the reality is the breathless media has sold the market the idea that QE is the reason the market is up for four years plus. That perception appears to be reality now because it also appears the breathless media has sold the market the idea it matters if the Fed quits QE sooner rather than later. My confusion then lies in today’s market movement. How is it that today’s news on PPI (inflation index) didn’t push the market up?
- Producer prices rose more than expected in May as gasoline and food prices rebounded, but underlying inflation pressures remained muted, which could argue against an early scaling back of monetary stimulus by the Federal Reserve.
Oh, wait! I am not the only one confused about all of this. It seems the old storyline above now conflates with the new storyline below.
- Signs of fundamental strength in the economy despite a tighter fiscal policy in Washington could move the Fed closer to a decision to trim the bond purchases it has been making to keep interest rates low and boost the economy.
Okay, folks, here is the reality and it is not perceived. Ben Bernanke has stated that QE will not stop until the economy is growing with stability, and that will come when employment is 6.5% or lower. As well, as long as inflation remains around the 2% mark, the Fed will not allow interest rates to rise. So sayeth the Fed king. I expect he will repeat that next week after the Fed debates again.
Here is another reality. The market is up for four years plus because of the US economy dragging itself out of the depths of the Great Recession and strong corporate profits for more than a few quarters in a row. Now, can we please accept that and move on?
- Fords sales have continued to do well, despite the slow growth in the economy and worries about Ford’s large exposure to the European weakness. Ford’s pre-tax profits have reached their highest level in over a decade. A large portion of this growth has resulted from increased market share in Asia, particularly China.
- General Electric is making a radical departure from the way it has traditionally manufactured things. Its aviation division, the world’s largest supplier of jet engines, is preparing to produce a fuel nozzle for a new aircraft engine by printing the part with lasers rather than casting and welding the metal. The technique, known as additive manufacturing (because it builds an object by adding ultrathin layers of material one by one), could transform how GE designs and makes many of the complex parts that go into everything from gas turbines to ultrasound machines.
Ford is making lots of money and GE is innovating with the latest technological breakthrough- 3-d printing. Both are emblematic of what I have been saying about the economy and the market. Oh, and BTW, Ford is a buy and GE is way underpriced.
Trade in the day; Invest in your life …
