A little bit forward and a bit less back. That is the new pattern of the market and it suggests some stability has taken root. I like it. The VIX has found refuge in the mid-14 zone and both the Russell 2000 and the S&P Mid-Cap index are trending up with the overall market. Not bad, after all the hoopla of late.
- U.S. stocks rose at the open on Wednesday after the Republican Party took control of the Senate in the midterm elections, as expected, and a report on the labor market was stronger than expected.
Perhaps the former is a reason the market is rising today, but it strikes me as somewhat off the mark. Ironically, the market has historically performed better under Democratic rule than it has under Republican rule.
Although, the point is taken that the one sector that has suffered this year is the Energy sector. Take a look at the XLE (Spider Select Energy Trust Index). It has not had a pretty ride this year. So, maybe the market thinks that the Repubs will come in and push through the Keystone Pipeline Project, and it will push through reforms on oil exports, and it will reduce environmental red tape for the coal industry. Perhaps, the market thinks a Republican Congress will somehow roll back the Affordable HealthCare Act. Well, I have one word for all of this dreaming – veto.
Actually, I have another word, which might actually be the reason the market is going up after the mid-term elections of yesterday – compromise. Yes, I said the word the Tea Party folks hate, but the fact is that the larger prize for the Repubs is the presidency in 2016.
The last thing they want to be seen as is obstructionists and petty bickerers, if they want to get the whole enchilada. After all, a strong message that came out of yesterday’s elections is “Washington in general is the problem.” America wants the Repubs and Demos to get along to get things done.
In any case, the collapse of the energy sector this year is correlated to the collapse of oil, no doubt, and the collapse of commodities in general has the market thinking, but not overly concerned, apparently. Just check out gold and its trend.
- The recent collapse in commodity prices is driven not only by a stronger dollar, but also by fears of global economic weakness. The shift lower in commodity prices represents a significant challenge to stimulus measures from other leading central banks now that the Federal Reserve has turned to a neutral stance.
Okay, might I take issue with the above thinking. A stronger dollar contributes to more expensive oil and other commodities that are traded in US dollars, but the fact is that the stronger dollar has come after the collapse in commodity prices began, and the reason prices have been collapsing is not the stronger dollar (that exacerbates it); rather, it is supply and demand. Just look at grains status after you look at oil. Simply, there is just too much of everything, and when that happens, prices collapse. Yup … pretty dang simple.
The other thing that has the market tickled today is the jobs report that just came out.
- The ADP National Employment Report showed private payrolls increased by 230,000 in October, for a record seven straight months of job gains exceeding 200,000.
- Job gains last month were broad-based, with mid-sized businesses adding the most workers in more than seven years.
As well, the other good news on this front is that US workers are making more money in a tightening labor market.
- U.S. services sector slows; private payrolls increase.
The latter part of that is the good news. The former is not really bad news. The US services sector is still in good shape at 57.1. Above 50 is solid expansion, so the drop from 58 to 57 is not really that significant.
So, yes, all of the above adds to the stability of the market.
Trade in the day; invest in your life …
