What a way to start a Monday. It reminds me of the movie “Ground Hog Day.” In that movie, the main character (Bill Murray) gets up every day to run through the same day over and over again. He repeats each day until he makes the choices to get his life right. That is how the market is acting these past few weeks. Every day is déjà vu all over again.
What is interesting about today, though, is that market movement comes one day before the Fed tells the world what is coming next with QE. It appears the market is betting the Fed will leads us all to believe that QE tapering is not imminent later this year. On the other hand, the market might also be signaling it doesn’t really care what the Fed has to say. It might be signaling, as I have been saying, that economic fundamentals are more important than the perceptions about QE. Of course, no matter what the market does tomorrow, we still will not know definitively what the market really feels. That is why I say just take what we have and work with it.
As you might guess, my take on the market is more aligned with the information below.
- Thanks to the life support of $12 trillion and 515 rate cuts by the world’s central banks since March 2009, the global economy’s heart is beginning to beat again. As the market senses a robust economic recovery is underway, expectations are climbing that this growth will continue. Even the Federal Reserve has hinted that it may taper quantitative easing because of the improved economic situation. As a result, interest rates are increasing.
Rising interest rates might just be the worst thing to come out of all this recent nonsense about the Fed’s intentions. As a silver lining, if rates rise, that will put a small brake on the housing market (which it needs), as will the actuality of the data below, and it will take some pressure off the equities market (which it needs), as some investors will move back into longer-term bonds to take advantage of the higher yields.
- The National Association of Home Builders/Wells Fargo Housing Market index surged to 52 in June from 44 in May, handily topping forecasts for 45. It was the biggest one-month gain since 2002. It was the first time the index has been above 50 since April 2006.
Yet, the more important point one needs to consider here is the reality of the overall economic situation. Despite the daily dose of short-term news that is swallowed like aspirin after a long night out, the market ultimately takes a longer view of where the US and global economies are going and many signs are pointing to the spring swoon ending.
- The Empire Manufacturing Index – one of the more closely watched indicators because it is a current report – was reported at +7.8 in June. This was well above the consensus for a reading of +1.4 as well as last month’s -1.4.
In fact, I would argue the market is not only seeing the big three economies (US, China, and Japan) having better days ahead, it is also seeing the biggest economy of all starting to turn around. Europe is showing more signs that the Q4 just might provide the clarity that the behemoth economy is finally coming back.
- Europe was the lone wild card, but following Germany’s change of heart away from austerity, a positive outlook for growth, and therefore, rates, is rising in that area of the world as well.
For now, though, let’s hope the market makes the right choices to get itself out its Ground Hog Day routine. If not, then we can probably expect more up and down day after day.
Trade in the day; Invest in your life …
