I have told you time and again that those who try to predict market movement often end up with egg on their face. Well, I am no exception. Why just yesterday, I said, “This week (what’s left of it) before the election, I believe the market will chill, perhaps even retreat a bit. The fact that good economic data did not move the market strongly last week suggests it is not interested in taking on much risk.”
Imagine my surprise when I awoke this morning to the market reacting strongly to positive economic data. The truth is I thought today would be a buying opportunity, and so I have the day off, at least the morning anyway.
So what gives? Why is today’s news different from the spate of good economic data the market has taken in recently? Could it be the 5-year old trade agreement with Panama just went into effect yesterday?
U.S. free trade agreement with Panama went into force on Wednesday, five years after it was originally negotiated, opening the way for increased U.S. exports as the Central American country continues its canal expansion project. The free trade pact immediately eliminates Panama’s tariffs on 86 percent of U.S. consumer and industrial goods, including autos, chemicals, electrical equipment, information technology, and medical technology.
The above certainly is a plus for the US economy (and trade opportunities to boot), but trade with Panama hardly seems a catalyst for such a move today. Perhaps it is the news out of China, that China again is showing stronger PMI data.
The final reading for the HSBC Purchasing Managers’ Index rose to 49.5 in October – just shy of the 50-point line that divides accelerating from slowing growth – from 47.9 in September. The reading was the highest since February. The new orders sub-index rose to 51.2 – its first time in expansionary territory since October of last year.
The above, although not terrific is certainly good, as it indicates the Chinese economy has certainly flattened, which means it has stopped its rapid deceleration. This alone could be a huge buy signal for the market. Yet, I am not convinced China excites the market like it used to – too many economic fits and starts.
But what might be exciting the market is the data around the US consumer. Specifically, consumer sentiment rose again, this time to a four-year high and the sentiment is translating into action. Retailers are reporting strong sales and automakers are selling cars like crazy.
GM on Wednesday posted a surprisingly strong profit on higher sales and vehicle prices, mainly in the United States.
GM profit came in on the heels of the extraordinary profit of Ford last week, and on top of those numbers, Toyota and Honda sales in the US outpaced both Ford and GM. The really good news there is the reason for the increased sales of the Japanese automakers is Americans are reaching out for more fuel efficient cars. Higher gas prices are the reason, no doubt.
Today is a testament to the reality that the best we can do (and I mean anyone) is win more than we lose, because predicting market movement is, well, an art at best and foolhardy at worst.
Trade in the day; Invest in your life …
