Traders Ignore Reality Yet Again
09/10/2012 2:00 am EST
The repeated rallies on ostensibly bad news makes it more and more likely that the markets will implode if the Fed does not move on QE3 this week, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Back to reality.
On Thursday, stocks soared around the world on promises that the European Central Bank would stand behind Italian and Spanish government bonds. But today, we’re back to the same old real world. And the same old investment theory.
US job growth for August was a disappointing 96,000. That’s below both the consensus of 130,000 jobs among economists surveyed by Briefing.com and the revised numbers for July showing growth of 141,000 jobs. The private sector added 103,000 jobs in August, down from 162,000 in July.
You might expect US stocks to be down on the disappointment, but instead the S&P 500 closed up slightly on Friday, up 0.4% to 1,437.92.
Traders have apparently decided to buy into the argument again that weak US economic numbers mean the Federal Reserve is more likely to institute a third round of quantitative easing—or something—to stimulate the economy when the Fed’s Open Market Committee meets on September 13.
I think that’s unlikely, but positioning your portfolio to avoid/catch a potential Fed stimulus has been a winning strategy for the last month, so why change horses now?
It will be interesting to see how traders decide to reposition their portfolios after a Fed move—one way or the other—is off the table after Thursday. The Open Market Committee’s next meeting after this week isn’t until October 24.Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.
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