The market has put together a decent string of gains after its latest test of the recent lows. But why? The easiest answer is because things in Europe have settled down for the time being and the politicians are saying the right things about Greece not being kicked out of the Euro zone. Meanwhile, investors are ignoring more putrid news at home.
This week has been pretty bad on the economic news front and does nothing to dispel fears that we could be heading back into recession. It is important not to let rallies distract you from economic reality because once investors decide it is important again, stocks will drop if the news keeps stinking. Let’s go over some of the recent news.
- Retail Sales- August figures came in at no growth versus expectations of 0.3% growth. July was also revised down from 0.5% to 0.3%. Bigger ticket items like auto sales have taken a hit recently. Households are clearly tightening their purse strings.
- The Empire State Index- The latest reading marked the fourth month in a row of negative prints and it missed expectations. Weakness was widespread in this manufacturing report with new orders, employment, and shipments all falling.
- Jobless Claims- Claims for the recent week rose to 428,000, which was 10,000 more than expected and well above the level consistent with strong job growth.
- CPI (Inflation)- Inflation was hotter than expected this last month and even the core rate of inflation printed its highest level since late 2008. Rising inflation combined with weak economic data is simply a bad situation.
During this market bounce, I haven’t heard any chatter about the continuation of bad data. Rather optimism that Europe’s problems are stabilizing seems to be behind the bounce. I am just not feeling that this is sustainable, especially with the laundry list of bad news listed above. Tread carefully and until things improve, don’t get too aggressive on the long side.
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