The morning started off a bit oddly. The jobs report came in and the number of new jobs (74,000) is in direct opposition to the actual flow of the US economy. It is hugely disparate from the ADP and Challenger reports that came out yesterday.
Mind you, the BLS report (US government) often is different from the ADP report, but such a wide disparity seems odd. Nevertheless, it is what it is and the breathless media will analyze it ad nauseum, all the while speculating what the numbers could mean for Fed policy. The funny thing is the numbers are always revised two more times, so analyzing them to such a degree now seems, well, ludicrous.
- As usual, there were revisions to the prior two months’ reports. November’s report was revised upward to 238K from 203K while October’s job totals was unchanged from 200K.
Anyway, the market is down again today, but not wholeheartedly. It actually seems a bit indifferent. One would think either a) the market goes up because the low number means the Fed will hang on longer to its QE policy or b) it goes down because the number suggests a weakening economy. At this moment, looking at the market movement, “b” seems to be the winner.
I suspect the jobs number will change significantly in the next revisions, so put it away for now and look elsewhere for clues about the future of economic growth and earnings.
- In December, China’s export growth slowed to 4.3% from 12.7% and missed consensus, although imports accelerated to +8.3% and topped expectations.
The media has painted the above as a negative, at least in the headline news. In fact, though, this has been the stated goal of China for years – reduce exports and increase imports, relying more on domestic consumption to push GDP growth – so, it is, in fact, a good thing. The Chinese consumer is buying more foreign goods.
Over in Europe, we have some more good economic data coming out. This time it is not about the economic powerhouses; rather, it is about one of the economic weaklings.
- Spanish industrial output rose 2.6% on year in November, recovering from a fall of 0.8% in October. The figure represents the biggest increase in over two years and adds to the flow of positive data that has been coming out of Spain over the past few months.
I often come across statements that make me stop reading. I have to go back and read them again to make sure I understand what the content means. Below is one I read today, and it took me a minute to grasp its meaning. At first, I disagreed strongly with the statement because it flies right into my face. I rely on the state of the economy to make my bets and it has panned out pretty darn well for me over the years.
- One of the big mistakes investors made in 2013 was to invest based on the current state of the economy. While this may be hard to hear, taking such an approach displays an almost complete lack of understanding as to how the stock market works.
As I read further and thought longer, I understood what the writer meant. Although the market ultimately relies on economic fundamentals, it is a forward looking creature, meaning, the current state of the economy is less important than the future state of the economy. This is exactly what I believe.
Most all of the economic indicators are lagging and the market is forward looking, so it is not about what the current state is; rather it is about what it will be in six months. The thinking is somewhat weird, as the current numbers play an important role in current market movement for traders, but for investors (the big money), the current numbers portend the future – where do I want my money to be six months from now. I am both a trader and an investor, so the current numbers have a dual meaning for me.
Speaking of the future, here is a bit of thinking to consider.
- If we start to get even a whiff of inflation in the economy, this could quickly become a major headwind for stocks.
The market always has performed better when inflation is tame, and it is tame now, but inflation is something to watch out for. Remember, it is not just about the price of goods that is inflationary. Some 70% of inflation (according to the Fed) derives from wages, so when wages start to rise, in time, it will be bad.
In the short term, rising wages will add to the market momentum. More money in the consumers’ hands means more money spent in the economy. Me thinks this is the number to watch, perhaps more so than the initial, unrevised job numbers for a single month.
Trade in the day; Invest in your life …
