Economic data Friday should be considered “taper friendly” but didn’t intimidate investors as they quickly changed views. Perhaps a taper will now be okay since better data is supporting such a move and besides, the Fed needs a way out and this may be it. PIMCOs Bill Gross not so daringly estimated odds of a taper this year at 50% and JPM’s Chief Economist Michael Feroli “smells” a little tapering in the air.
“In the meantime, we still think December is a close call but that the FOMC will hold off on tapering until January. While fiscal issues appear less ominous and employment prospects look favorable, we still think that before pulling back on asset purchases the Fed would like to see more evidence that housing is stabilizing and that inflation is finding a floor.
One could argue that all of the decline (unemployment rate) since then has been due to falling participation, but all of the fall in participation over that period can be accounted for non-participants who do not want a job.” (They’re making as much from government benefits so why bother?
So, the Employment Report was positive with 203K new jobs vs 185K exp & prior 204K and the unemployment rate dropping to 7% from 7.3%. Not so rosy was Personal Income data down -0.1% vs 0.3% exp & prior 0.5%. Personal Spending rose to 0.3% vs 0.3% exp & prior 0.2% as the two reflect spending people don’t have. (Well, that’s America man!) Later Consumer Sentiment came in much better at 82.5 vs 75.5 exp & prior 75.1. This Michigan data is more heavily weighted by stock market performance.
Markets rallied sharply on all this and it didn’t hurt when a large Fed POMO (over $5 billion) was like throwing some gas on the fire. (Perhaps enjoy it while you can?) One thing is clear the past few weeks is traders have been bashed by sharp and short-term two-way trends. All this bother about the Fed is driving many nuts since their so addicted to Fed liquidity. The bottom line is the long-term trend produced by a slower trend-following approach has been sensible. It takes time to discover this and many bears are throwing in the towel it seems. So far the Fed has learned it can continue to manage/manipulate financial markets even as fiscal disciplines, stagnant economic growth and declining incomes go to hell in a hand basket. How long they can pull this off is anyone’s guess.
Leading markets higher were Financials (XLF), Banks (KBE), Industrials (XLI), Semiconductors (SMH), Homebuilders (ITB), Healthcare (XLV), Emerging Markets (EEM), China (FXI), Japan (EWJ), Europe (IBV) and just about everything that was down all this week. Underperforming sectors included Gold (GLD), Solar (TAN), Mining (XME), Oil Drillers (XOP), Retail (XRT) and Natural Gas Providers (FCG). The dollar (UUP) was slightly higher and bonds (TLT) were flat.
The rally was able to put in the end of week “stick save” allowing nearly positive returns for the week. So, “good news is now good”?
Volume on the rally was normal for the last 10 days of trading. Breadth per the WSJ was quite positive with parts of the sectors close to a 90/10 reading.
Well that was exciting wasn’t it? We went from good news is bad to good news is good in the space of 24 hours.
If it’s any comfort there is much less economic data next week.
Have a great weekend!
Let’s see what happens.
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|WTI Crude Futr||97.31||-0.34||-0.35 %||16:18|
|US Dollar||80.16||-0.10||-0.13 %||16:23|
|Brazil||2230.96||0.80 %||-4.29 %||-18.21 %|
|Russia||762.56||1.94 %||-1.55 %||-5.57 %|
|India||402.35||0.25 %||2.01 %||-6.44 %|
|China||65.12||0.09 %||-0.34 %||3.61 %|