If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Not Too Hot, Not Too Cold...
07/10/2013 8:30 am EST
In reviewing the recent economic data, MoneyShow's Jim Jubak thinks the mix of better than expected along with worse than expected data is just what the market needs.
Maybe what Disney should have done is made a movie about Goldilocks rather than the Lone Ranger and Tonto, because Goldilocks is really what the market needs—stock market that is— and it is actually what the stock market is getting.
If you look at the first week of July, for example; on July 2 we had stronger than expected numbers from the Institute for Supply Management survey of purchasing managers. They basically go around and ask people so, what are your plans? This was the manufacturing sector; stronger than expected for June, but if you read down a little bit—sub-index— which talked to people about hiring prospects was weaker than expected, so what you had was stronger-than-expected manufacturing growth but weaker-than-expected jobs.
If you are looking at the Fed and the Fed’s policy of well, when are they going to start to taper off that buying of $85 billion a month in Treasuries and mortgage-backed assets so the market is afraid this is going to come to an end and end support of the market; well this kind of not-so-hot, not-so-cold is exactly what the market needs to see: Goldilocks.
The next day, on July 3, we had stronger-than-expected numbers from ADP which is a company that does a private survey of the jobs market, reporting jobs additions in June of about 188,000. Economists expected about 150,000 so that was too hot; but on the other hand we had the second ISM survey. They do a separate survey of the service sector, the day before was the manufacturing sector, and on the third, the service sector number came in lower than expected.
The jobs number for the whole month, the government official jobs number, again came in about where people expect; not so hot, not so cold. We’re not getting a big, big jump to somewhere. The Fed has said well, we’re not going to really commit to doing anything until we see unemployment down near 7% at 7.5%, 7.7%, 7.3%; that is still a long way to go when the economy is producing only like 160,000 jobs a month, 180,000 jobs a month.
To get big reductions, you have to get above 250,000 a month in job growth and it just doesn’t look likely so after being really, really afraid, the Fed is going to move faster than anybody expected. What the economy is delivering and what the numbers are delivering is actually this kind of Goldilocks situation where it is not too hot; it’s not too cold; it is not too big; it is not too small; it is not too hard; it is not too soft, but it is just right.
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