Taper or no taper? When? How much? These are the worries that are currently driving tensions in the stock market on a daily basis. As I wrote in a previous article, no one seems to care that corporate revenue growth is muted and consumers aren’t spending.
Last week, we saw jobs market data that helps support the Federal Reserve’s reasons to begin tapering its bond buying program.
The non-farm payrolls reported the generation of 203,000 new jobs—better than the consensus estimate of 180,000 for the month of November. This represented the second straight month that more than 200,000 jobs were created, and while the jobs market has a long way to go, this is positive news. Jobs numbers were revised upwards in September and October.
Now it may be true that the quality of jobs created could be improved upon, as much of the increase in the jobs market continues to be driven by the service sector and other lower-skilled jobs. However, the results do suggest some action may be taken by the Federal Reserve.
The unemployment rate fell to a five-year low of seven percent, much better than the consensus 7.2% and October’s 7.3%. The rate appears positive on the surface.
The Federal Reserve had said it wants to see the unemployment rate fall to around 6.5% before it considers raising interest rates, but with a seven percent rate, you have to wonder if the Federal Reserve is thinking hard about when to rein in its monthly bond buying and reduce the stock market’s dependency on cheap money.
Yet I don’t think the Federal Reserve will begin tapering until … Read More
For me, trading has always revolved around economic fundamentals and stock market analysis. And if you’re like me, you’re getting somewhat irritated with the recent trading in the stock market by investors who seem more inclined to trade on what economists at the Federal Reserve do with their quantitative easing strategy than on what’s really important—the underlying fundamentals of the economy and corporate America’s financial health.
The reality is that corporate America is struggling to grow revenues. This means that companies and consumers aren’t spending at levels that make me comfortable with the economy. Of course, the stock market doesn’t really seem to care; it simply wants the flow of cheap money to continue.
In my view, it’s the same old thing that continues to engulf the trading in the stock market, and it’s annoying. For instance, if we see strong non-jobs economic data, the stock market edges higher. If we see signs of strengthening in the jobs market, the stock market sells off.
Of course, that’s because the Fed has made it clear that jobs creation is the focal point that will dictate when the central bank will begin to taper its monthly bond buying program, an unprecedented policy that has added trillions of dollars of debt to the bank’s balance sheet.
While all eyes will be on the non-farm payrolls reading today, November’s ADP Employment Change reading released last Wednesday showed that 215,000 new jobs were created last month, which is well above the consensus estimate of 173,000 and the upwardly revised 184,000 jobs created in October. How did the stock market react to the good news? Negatively, … Read More
In my previous article, I discussed the new record highs achieved by the stock market and how it looks like there will be more gains to come.
Yet based on what we have seen over the past few decades, something appears to be out of whack. I’m sure many of you also realize this seeming discrepancy but are happy to ride the stock market advance anyway.
Let me explain.
The six-month period from June to October has historically been the worst period for the stock market, according to the Stock Trader’s Almanac.
But the S&P 500 advanced by about eight percent in this period of supposed weakness. The stock market actually saw the S&P 500 and DOW Industrial rally to multiple record-highs.
It’s clear that something is out of whack, and that “something” appears to be a mispricing in the stock market.
If you believe in the historical tendencies—that is, despite the contradictory action in the June–October period this year—there will be more gains to come and more opportunities to make money. This means that it’s not the time to exit the stock market yet; instead, it’s time to look for opportunities to buy, especially on weakness.
The facts show that investing in the six months from November to May has produced the best returns for the stock market versus the June to October period, according to the Stock Trader’s Almanac.
So, having seen an eight-percent advance in the S&P 500 from June to October, should we expect to see an even bigger advance over the next five months to May? Based on what I’m seeing, it does look like … Read More
Recently, European Central Bank (ECB) policymaker Jens Weidmann said the strategy of printing money was not the solution to the eurozone crisis. (Source: Carrel, P., “Printing money not the way out of crisis: ECB’s Weidmann,” Yahoo! Finance, November 20, 2013.) Ya, no joke!
Of course, Weidmann was not referring to the Federal Reserve, but to thoughts from within the ECB that perhaps buying assets was another tool to use. He may as well be talking about the Federal Reserve’s quantitative easing strategy, though. I’m sure he’s been looking at the Federal Reserve’s massive money printing and its overall ineffectiveness; he’s likely studying the U.S. situation and realizing that the act of simply printing money is not the end-all for achieving success in rebuilding an economy.
There’s that old saying that you learn from other people’s mistakes—that’s what we have here.
The Federal Reserve continues to balk at stopping the money printing. Current Federal Reserve Chairman Ben Bernanke expressed his disappointment in the recent jobs market readings in a recent speech, saying there were insufficient reasons to stop the quantitative easing.
Five years of quantitative easing by the Federal Reserve and, while it clearly helped the country from a much deeper recession and breakdown, the benefits are stalling.
So I say to Weidmann, fight against the use of quantitative easing via printing money in the eurozone, as it will simply cost the eurozone hundreds of billions of euros and would likely do very little for the economy. The already historically record-low interest rates in the eurozone will suffice.
The same thing should be the case on this side of the Atlantic. … Read More