It's been a long time since non-economic issues held this much sway with investors; these non-economic issues are of greater importance than the biggest economic report of any given month. Look at Friday's session, the jobs report was a major bust, sending stocks lower at the open. As the morning moved along, scuttlebutt of a Ukraine-Russia cease-fire gained credibility, which lifted the market. President Obama spoke at the NATO summit borrowing the theme set out by UK Prime Minister David Cameron. It is no coincidence that the major indices moved into the black and gained traction. It seemed America would take a firmer hand with ISIS; and would even move toward bringing Ukraine into NATO. There are a lot of people who are not watching the market minute to minute, but instead are going with their gut and personal feelings to assess the market- it is a disservice to the public and for those with clients. A good number of them have zero understanding and are just talking heads or booksellers, resulting in a mistake that has been quite costly.
As for the narrative, the big job miss keeps the Fed in the game. The street loves bad news and the fact we are at an all-time high belies that myth. Look at the trends this year; most economic news has been better than consensus and several data points are at multi-year highs. So, the market has been going up on "good" news:
- ISM Highest since March 2011
- ISM Manufacturing highest since 2004
- Durable Goods new orders +22.6%, estimates +5.1%
Factory orders, corporate profits, and a slew of other data have posted better-than-expected results and even all-time records. One can argue that estimates are too low or how the definition of "good" has morphed over the years, but the idea that the Fed is the only reason stocks are higher is not true. There are stocks that are expensive. The rallies are long in the tooth, but try to deal in facts and not emotions when assessing the market and your portfolio. This is not to say that emotions don't move markets or that someday those who have been wrong for half a dozen years won't claim victory and in the process, try their best to destroy the market; it’s to say that you must know the facts. By the way, every jobs report this year has been revised higher, which means all but January and August have all beaten consensus. Over the last five years, August has seen an average revision of +77,000... There is still a chance the final number will beat consensus, and a few smart investors were aware of this on Friday.
Note: President Obama will give more detail on his plan for ISIS on Wednesday after going to Congress to rubberstamp it on Tuesday. Of course, the firm pledges of ‘no boots on the ground’ will make going to Congress a head scratcher beyond politics. There was a hint of Special Ops and more strategy that is decisive when President Obama spoke in Wales on Friday. I hope he does not walk back with talk of feeble coalitions, and goes beyond taking ground from ISIS to a firm commitment to destroy them.
Spotty Recovery
There will come a time when the focus shifts from global hot spots and threats, investors, and would-be investors who will look at domestic economics. The uneven nature of the recovery will have people only seeing their world or seeing the pain in the other pockets of the economy. I get the question, why would someone without a paycheck care or notice any areas that are improving. I also get how those who are doing well can feel awful about the fix of family members and the rest of the nation.
I got a great email from someone who took offense at my ire of the woe-is-me attitude in America. He made great points about being in a good financial position, but not willing to take chances, and also seeing others around him hurting. He mentioned my moving to a small town and using a hammer and paint brush after the next crash. My reply was that I think there are ways to benefit from sweat equity more than once; and why not own a stock in a hammer and paint brush company. Moreover, there is no place to hide when great people hide out in foxholes because small towns will feel more pain in the next recession than larger towns. I urge regular people to own things, to get better control of their destiny and to take risk, even when it seems hopeless.