U.S. stocks rose Friday as data showed payrolls pushed past their pre-recession peak for the first time in May. “The market likes this steady state of economic improvement,” Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in New York, which helps manage about $1.5 billion in assets, said in a phone interview. “A really weak number would raise economic concerns that the economy is rolling over, and a too-strong number would cause concern about the Fed accelerating its tightening timetable. It’s a sweet spot for the market.”
We know many question the government’s numbers, but the numbers are the numbers and they are what the market looks at to make decisions. Recent improvement in the unemployment rate has brought the chart into middle-of-the-pack territory (see green line below). The chart below is not in a showstopper trend for stocks.
The Market Does Not Care What You Think
Many have been bearish on the stock market and U.S. economy for years, and yet, the market continues to rise. How can that be? Asset prices are set not by the opinion of individuals, but rather by the aggregate or net opinion of all investors around the globe. Until we understand where our personal opinions and ego fit into the larger economic picture, it is difficult to make objective and productive investment decisions. While ego is a difficult topic, if you plan to do some studying this weekend, the concepts outlined in this article are a great place to start: Want To Reduce Missteps? Become A 2-Faced Investor. Our personal opinions, including mine, have little-to-no impact on the value of our investments…think about that. While it is a harsh expression, the market doesn’t care what you think, captures how asset markets function in the real world.
The Aggregate Opinion Is Shifting
Since the market determines the value of our 401ks and IRAs, shouldn’t we be asking what does the market think? The answer, which is evident on the charts of the S&P 500 below, is the market was indecisive, now it is more confident, which favors bullish outcomes from a probabilistic perspective looking out several weeks and months. If you are experienced in the markets, it is difficult to say the resolution shown below is anything other than good for the stock market bulls.
Fed No Stranger To A Rock…
Friday’s labor report and the market’s recent breakout is moving the Fed closer to being between a rock and a hard place. The economic numbers look better on the surface, but underneath concerns remain. From The Wall Street Journal:
The combination of low market volatility and ultralow interest rates give investors an incentive to use borrowed money to buy risky assets. So far, that doesn’t seem to be happening, but the Fed cannot know how long this will last. Nor can it know exactly what is happening in lightly regulated areas of the market. That argues for starting the process of raising short-term rates up from zero sooner rather than later. Yet trying to stomp out the possibility of excessive risk-taking when there is still so much slack in the job market could also be dangerous. First, it could push more people permanently out of the workforce, putting the economy on a lower growth path. Second, it could set back the day when wages are advancing quickly enough to push inflation, running at 1.4% excluding food and energy, to the 2% pace the Fed aims for.
Still Not Convinced? Review The Weight Of The Evidence
Having studied charts for years, we can tell you with 100% certainty that when stocks are doing well you can always find a handful of charts that support the bearish case.