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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (9888)	4/5/1999 8:04:00 PM
From: pater tenebrarum	Respond to of 99985

re:<market ignores rise in oil prices> in the 70's and early 80's it used to be conventional wisdom that the last leg up in a bull market in stocks was accompanied by the first leg up in a beginning bull market in commodities. i'm not sure whether this still holds true, considering that deflation is experienced in parts of asia and europe. but if there ever were deflationary fears in the u.s., they have surely receded by now and will in due course be replaced by renewed fear of inflation. how do i know this? i watch the stock market's reaction on the release of economic data. in a zero-inflation or deflationary environment, the market reacts positively on strong economic news. in an inflationary environment, strong economic data give the market the jitters. since the latest jobs report was interpreted as 'weak' and the market proceeded to rally, i conclude that inflation is back (even though it doesn't register yet in the cpi & ppi data). if you look at the jobs reports of the past twelve months, and compare them with the market's reaction, you will find that the 'zero-inflation' period was clearly discernible by the market rallying on strong jobs data. a little bit of inflation is generally good for stocks, as they represent a certain amount of tangible assets, the value of which increases over time with inflation (that's the theory at least). i don't have to tell you why lots of inflation wouldn't be good. i'll write a post about deflation if it should become a concern once again.