The market is an enigmatic thing, that is for sure. Yesterday’s action completely fooled me, as I thought the election news out of Europe would surely send the market spinning. Yet, the response seemed quite muted. Perhaps, the market and I are on the same page, again. Could it be that the market is becoming more rational, more sensible about Europe?
Before thinking about that, though, I just want to tell you that it is true – it does rain in Ireland. The last two days have been cool and wet and several locals have told us the sun has come and gone for the summer. They say, if they get three more days of sun between now and September, that will be normal. Okay, so there is the Ireland weather report, now back to the news.
One positive thing we are seeing out of the elections and we are hearing from the ECB chairman is a focus on growth and that austerity measures alone are not going to get them out of this crisis.
My question was, is the market becoming more rational, more sensible about Europe? I hold little hope for the former, but the latter might be true, at least for the time being.
As I have said, the process of righting the European ship is long and messy. Most of the mess is out of the way now, but the Greece elections might throw some debris out, as might the Ireland election coming at the end of this month. In the meantime, Germany and the rest of the gang seem to understand that simply cutting budgets will not produce the results they need to make Europe stronger economically. Cutting budgets is necessary and painful, but in the end, without economic stimulation, the budget cutting will have the opposite effect desired – it will produce long-term recession. Just ask Greece.
Yesterday’s market reaction also struck me as puzzling because of the recent US labor report. Maybe, some rationality is creeping into the market after all. I don’t want to get too excited, but I am thinking the market understands the labor report will probably improve next month for two reasons.
Along with the weak labor reports (March and April) came a severe drop in productivity. To make up for that, businesses will have to hire workers. As well, if recent patterns hold, the preliminary numbers from the government will be revised upward for both March and April.
The second reason, and perhaps more important reason, the market seems not overly concerned about the labor market at the moment is the price of oil. It has held steady for some time and in the last few days has dropped below $100 (WTI). If this holds, the price of gas will drop and the consumer going into summer will have more money to spend on all kinds of things. The market likes this.
Glitches, bumps, and misdirection is the theme for the market today and perhaps throughout the summer. When school gets out, crowds will gather in the streets of America. Protest will be in the air. Then the political rhetoric will ignite in full flame. The topics for both will be the US debt (raising the debt ceiling again) and the economy. The market will have its say in the discussion, certainly. What it will say is as of yet unknown, but of one thing we can be sure – it will speak loudly.
Get ready. The market is setting up to make itself crazy. Then again, maybe this is just me projecting. Perhaps it is time for me to end my adventure and get back to America, so I can have a better view.
Trade in the day; Invest in your life …
