Archive for March, 2012

Economic News Fueling Market Run?

When the market moves, analysts and media types alike, need to answer and explain why the movement is occurring. That is their job and we expect them to inform us about what is going on in the markets. Sometimes, they get it right. Sometimes they don’t. But once in a while they come up with an answer that seems reasonable……seems to fit the situation. The answer that they are coming up with to explain the current rally is that the market is viewing all US economic data as good news. The real good news is being reacted to while the bad news is being ignored. The market simply wants to go up!

I agree that the market simply wants to go up… always does…..I do not fully agree to the why. While many people do not care why as long as the market goes up, investors should care because you need to understand what is driving the market if you are going to have a better chance of consistently making a profit.  It is possible that investors are “ignoring” the bad news. But I believe that this is not the case. I believe that the bad US economic news is not being ignored, it is be down weighted. So is the good US economic data. This is due to globalization!

As I stated a while ago, I believed that the US stock market had diverged from the US economy and, at the time, attached itself to the Chinese economy. The reason for this was that the Chinese economy was growing at a ridiculously high rate and the big US companies (those in the DOW and many in the S&P 500) have evolved to a point where they are in a position to sell products and services in China. There were very few of those companies in that position just 10 years ago. So, for a good while now, the US company earnings which fueled this market were based on the Chinese economy (what they would buy and how much)……not the US economy! Chinese economic data was important….not just the US economic data!

Today, due to globalization and US companies’ ability to efficiently distribute their products globally, US economic data is no longer the sole driving force in our markets. Thus, US economic data is now weighted less heavily in the decision making process of the US market investors and participants. It is not being ignored……it just seems that way!