This morning while doing my daily read, a thought struck me – “quixotic” describes my writer’s relation with the market. This occurred to me when reading an article that predicted more big selling is on the way …
A market determined to find bad news will likely succeed, no matter if it is within Alcoa’s results, from the mouth of Ben Bernanke, or from the never-ending drip of economic data. Given that stocks were already transitioning to a more defensive posture prior to the payroll disaster on Friday, it will take something big, new and unexpected to reverse sentiment now.
Mind you, my reading covers all sides of the coin, so when I read that, I thought about a current economic fact, a fact that should give the market plenty of reason to reverse sentiment …
China returned to an export-led trade surplus in March, heralding the prospect that the global economy may be passing its low point in the current cycle.
When juxtaposing the two ideas, I believe the latter should win out in the contest to define market movement, especially since it was not too long ago China’s slowing economy provided all the “bad news” the market needed to fret. Of interest, though, when the market was fretting about China, it did not do what it has been doing since the FED released its recent meeting notes and the US government reported weak employment data.
Where once not very long ago, no headline or event seemed able to pierce the upward optimism of investors, suddenly the street is teeming with bloodhounds eager to find fault and think they smell smoke at every turn.
Digging deeper into the Chinese data pushed me closer to writing the market should get past the “smell of smoke” and return to the larger fundamental picture, aside from the employment data subject to revision twice.
The trade surplus of $5.35 billion last month confounded expectations of a $1.3 billion deficit as exports grew faster than expected and import growth eased from a 13-month peak.
The difference between expectation and reality above is like the difference between the smell of smoke and the actual fire, the difference between suspicion and reality. China is a key piece in the global economy, but not the whole piece. The US economy is the larger factor by far, but the probability that China now seems to have successfully thrown water on its hot inflation has to spark a thought in the mind of the market – China will turn its attention back toward growth.
And this is where I tilt at windmills, so to speak. I continually write about the data the breathless media underplays. I continually rail against the breathless media, suggesting the market would behave more rationally if bad news did not sell. The difference between Don Quixote and me, though, is I don’t actually believe the market will behave rationally because it should, nor do I believe that my writing about how it should will make a bit of difference in its behavior.
Currently, the market is fixated on the notion of correction, so any bad news is a catalyst for downward pressure. The good news is that no matter what the market is doing today, China and the US will not stop doing what they are doing, and, eventually, the market will get past the smell of smoke, and realize the fire is real, the global economy is headed up in its natural cycle. Well, even if the market doesn’t see this now, the titans of industry do …
Sentiment is picking up among chief executives as well. The Conference Board in New York said today that its measure of CEO confidence increased to 63 in the first quarter from 49 in the October to December period. Readings greater than 50 show more corporate heads are upbeat about the economy.
Trade in the day – Invest in your life …
