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Today's economic data provided yet more evidence that the economy continues to gradually improve. More importantly, given that Treasury yields remain extremely low, there is no evidence at all that the economy is deteriorating. The market continues to expect terrible news, but the news keeps coming in better than expected. Thus, the equity market continues to rally even though the economy struggles with a decidedly sub-par recovery.
Announced corporate layoffs are close to record lows. Corporate America is not panicking.
The ADP jobs number was stronger than expected (201K vs. 140K) and once again it points to a stronger than expected payroll jobs number tomorrow (currently expected to be only 140K).
Unemployment claims remain low. This chart shows the raw, nonseasonally adjusted data. Nothing bad at all about this that I can see.
The ISM service sector report was also somewhat better than expectations. It's definitely not showing growth to be excited about, but neither is it deteriorating. When the market expects deterioration and the economy instead grows by only a modest amount, that is bullish.
9 comments:
I'll say it again- if the S&P rallies from now until November Obama will win (incumbants win 90% of the time when this happens). The ECB is going to flood the market with liquidity and Uncle Ben will do the same since Romney has made it clear he will fire him if elected.
The year over year change in ADP is
now 2,144,000...highest year over year change for this report since March 2006...
@Bill, how much liquidity is the ECB injecting into Europe -- billions of Euros, tens of billions, hundreds of billions, a trillion, or a trillion plus (?) -- the number matters and I cannot find that number so far in reports, thanks...
Bill said...
"I'll say it again- if the S&P rallies from now until November Obama will win..."
Presidential election years create "uncertainty" about future policies. When the uncertainty is lifted, the market rallies.
It turns out that if the market senses that a Republican will win, it rallies more before the election and less afterward. Vice versa if the market senses a Democrat will win.
I don't think that you can predict who is going to win by the market reaction prior to an election.
@William,
The ECB's plan is balance sheet neutral. They will have an "unlimited" amount of securities they can purchase, but they need to sell off an equal amount of other securities. Even though it's billed as "unlimited" there may be a practical limit in how much they can buy.
LINK
Sterilization: As it did under the Securities Market Program, the ECB will continue to “sterilize” its bond purchases. In other words, the ECB will drain an equivalent amount of liquidity from the financial system by selling selling securities, such as Treasury bills, to banks and other institutions. That means the money supply doesn’t increase and the ECB avoids going down the path of quantitative easing, which entails creating new money that’s used to buy securities.
For some strategists, the insistence on sterilization robs the bazooka of more powerful ammo. By promising to sterilize, the ECB may still run up against effective constraints on the amount of bonds it can buy despite its insistence that it can buy in “unlimited” amounts.
If the S&P, or broader equity markets, were undervalued, we would see more management LBO and M&A action.
Evidently, management and private equity investors do not think it is worth "going private." at these prices.
That suggests Wall Street is priced about right.
Big rally on ECB news.
If the central banks of the world could just stick with pro-growth policies of a few years, then we would see a terrific rally on Wall Street.
As it is, the Japan scenario is equally likely--that may be why management LBOs are not forthcoming.
@Unknown, thanks for the ECB's sterilization requirements -- I understand what is happening in Europe much better.
you know I really tire of your incessant half glass full BS. "The share of workers and unemployed people who are seeking work out of the total population -- or the labor force participation rate -- dropped to a 30-year low of 63.5% in August". This country is in the deepest %^&* since the great D and all I hear from you is positive spin. the only reason stocks are doing well is bernanke's constant printing press. you really need a dose of reality
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