It’s a mad mad market when good news is bad and bad news is good
If we are to believe that the global economy is weakening and slowing down, then why have stock markets rallied so dramatically this year, especially in the United States?
We have a mad situation where, good news is bad news and bad news is good news! It’s nothing new though, just odd! In an ideal world, shouldn’t stock market ‘performance’ be driven mainly by company ‘performance’?
Right now – (12th. July 2019) – the U.S. is yet again setting fresh daily records. The DOW is up! The S&P 500 is up! NASDAQ is up! All setting new records and bursting through to new all time highs!
Conflicting information
We have conflicting information telegraphed on a daily basis and I don’t mind admitting it, I am a little confused. And I’m guessing the economists, analysts and pundits are too. Do they really have a clue what is going on?
Daily we are bombarded with new economic data from job creation, interest rates, manufacturing PMI, Services PMI, inflation reports, construction data, GDP, trade balance etc. etc. Maybe the interpretation of this data is where the problem lies – not in the data itself?
Trump tariff tantrum
I know the U.S. – China tariff trade war has cast a long shadow over world economies. And as Trump trumpets his own achievements by tweet, the markets react and reward. Is this the norm now? Should it be like this?
Tariff man says he can fix it
So, Trump imposes tariffs and by doing so arguably creates a problem, then he goes about ‘fixing’ the problem he ‘arguably’ created. I realise it is not quite as simplistic as I portray it. But if I were a cynic – I would probably look at it in the same way.
We create a problem, markets go down – we fix a problem (one that you created), markets go up! Oh what power!
I am the first to admit there are China/U.S. trade problems that need to be addressed, of course there are, and not least that of intellectual property protection. But to use tariffs as a political bargaining tool?
Tariffs have been used on, China, Mexico and the EU. Who next, India or the UK? Tariffs are being used as a political weapon.
Interest rates
Then there’ s the Fed. I recall a number of times this year, and last, the Fed saying that there will not be any interest rate cuts in 2019.
Then in early 2019 came the infamous Fed ‘pivot’.. a 180 degree about turn. I know economic situations change – but that quickly, really?
And now, here we are with a possible rate cut upon us for July? Is the U.S. economy facing such headwinds to make a rate cut that necessary or even likely? It appears so.
Investors
Investors love a rate cut, it move the markets. Businesses and individuals benefit. Stock markets go up. Even the whiff of rate cut will push markets up. More cheap money, lets load up!
But doesn’t a rate cut really mean that there is a problem in the economy. Isn’t it a tool used to make things better? We are under the impression that the global economy is slowing. Is it?
Economic data
Recent U.S.economic data has been weaker than expected but overall the economy is in pretty good shape, isn’t it? Low unemployment, employment at record levels. Inflation in a good place. U.S. citizens have money to spend. A booming stock market. Low interest rates. Plenty of jobs.
I can’t help but worry that there is a money monster lurking waiting to pounce and eat the economy. Are darker clouds on the horizon?
The U.S. stock market has had stellar gains this year, indeed for the last three years. We take notice of the headline companies such as the tech’ giants making the news.
We buy the headliners almost regardless. We keep buying the likes of Facebook, Amazon, Apple, Google and others for fear of missing out. We are blind sided by the indices climb to new all time highs and the for fear of missing out – FOMO.
But what is really going on?
Fill your boots
We have had eleven years of cheap money propping up world economies brought about by the 2007/2008 world financial crash. When will it be a good time to stop tinkering and to stop trying to force ‘fix’ the economy? Shouldn’t it be out of intensive care by now? Sensible economic decisions from central banks to assist ailing economic situations is one thing, but all this ‘cheap’ money for so long? Doesn’t appear to have done the trick so far.
The central banks of our world don’t appear to think so. Their fear of failure again is driving the central bank systems around the world to continue to prop up economies. Setting interest rates to control inflation, borrowing and saving has become a standard central bank economic weapon.
But so much quantative easing and for so long has given the wrong impression that all is good. There is so much money being pumped into world economies – how do you stop once you have started? The system is ‘dosed up’ on cheap money.
Paradox
If stock markets can rise on a simple comment. What effect value does the ‘real’ data have from the companies and people that make up our economy?
Paradoxically the U.S. equity markets are at all-time highs, which just demonstrates it is not just earnings that they look for in terms of market performance. Any stimulus will do, so long as it moves markets up! Sentiment is a big part of it.
I think we need to look more closely at the actual rather than the maybe.