As so much has gone this year in the market, one day it feels really good and the next it cannot get out of bed. The reason for the up and down is the news. The market still reads the newspaper in the morning and that is the problem.
As the market woke up today, the news told us the US employment report did not meet the oracles’ expectations and it rolled over and went back to sleep. True, the news could be better, nay, needs to be better, but the fact is what inspired the market yesterday is far more important than the lagging employment report from the US government.
President Mario Draghi unveiled a plan that could see the central bank buying up unlimited amounts of bonds in a move he believes makes the euro irreversible and will draw a line under the euro zone debt crisis.
The announcement from Mr. Draghi at the ECB is a game changer for the market, the global economy, and the US labor market. You see, in yesterday’s labor report, all job categories but one saw growth. Manufacturing lost 15,000 jobs, and one can clearly point to Europe and say, “Europe in recession is the reason our exports have dropped.” The ECB’s announcement is the first bold step in getting the EU economy back on its feet, and when it does rise again, the US employment report will change, no doubt.
Europe has also been an anchor around the neck of China. True, much of China’s slowing growth is self-induced, and rightfully so, but Europe has clearly slowed its return to economic glory, which is why it is filling the gap with its own stimulus program, just as it did in 2008 and 2009 when the global recession hit. Thus, the announcement out of China today is far more important to the market than the US employment report as well.
China has given the green light for 60 infrastructure projects worth more than $150 billion. China’s powerful economic planning body, the National Development and Reform Commission, announced approvals for projects that analysts estimate total more than 1 trillion yuan, roughly a quarter of the total size of the massive stimulus package unleashed in response to the global financial crisis.
China is serious about returning to robust growth and the EU is getting serious about returning to any growth. Since these two economies plus the US economy are the global economy for all intent and purpose, it stands to reason that if both China and Europe right their listing ships, smoother sailing is ahead for the US jobs report. This is why the market rolled over and went back to sleep this morning – the US jobs report, although disappointing, is not enough to inspire the market to sell off.
As I have said recently, I need to start giving the market more credit for seeing through the haze of bad news. I do, as each day that goes by in the market I see more clearly that it has a deeper, more intuitive understanding of economic reality. I know this because the S&P 500 earnings value is still in line with the overall market value. Thus, the major indices rising to four-year highs strikes me as the market understanding that the world is not coming to an end, that the economic future is a bit brighter than the breathless media’s interpretation of the lagging indicator known as the US employment report.
Trade in the day; Invest in your life …
