One organization's view (echoed by some here, as well...)
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This market is amazing. On Thursday, there was talk of a weak economy, and that was good news because it meant lower interest rates. There was also talk of a stronger economy, and that was good because it meant higher profits. This is speculative nature at its finest.
Briefing.com isn't going to argue with a market like this. When the futures open down 5 points, and then the cash investors come in a buy everything in sight, you don't stand in the way. However, we also can not sign in other than as a day trading suggestion. The simple fact is the market is running on empty: no profit growth while the economy is slowing down. This is a dangerous situation and will eventually cause a problem despite the current very strong momentum.
The idea behind the rally is "don't fight the Fed." That is certainly a valid point. But the market supposedly is already discounting a rate cut, then rallies further on additional talk of the same rate cut. Just think how far the market can go if the Fed only cuts rates 1/4% point every quarter, and spreads out a full point over another year! But the concept behind lower rates is largely that it will lead to profit growth. Right now, though, expectations are still too high for profits. The market is trading at 28 times earnings, with no profit growth, and it is a feeding frenzy. Frankly, that is good for business, but it also worries us.
The October employment data, accidentally released by the BLS on Thursday, showed that the economy is definitely slowing down. Non-farm payroll rose just 116,000 after a revised 157,000 in September. Just a few months ago they were growing 250,000 per month. Briefing.com believes that the market should be cheering higher growth, which would help profits. The Fed is probably going to ease anyway, so slower economic growth won't change the interest rate outlook greatly. The market will need profit growth in the fourth quarter, not lower rates. We fully recognize that the market disagrees. Right now, everything and anything is bullish. No dissent allowed. |
