{"id":45216,"date":"2013-12-10T09:22:41","date_gmt":"2013-12-10T14:22:41","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=45216"},"modified":"2013-12-10T09:22:41","modified_gmt":"2013-12-10T14:22:41","slug":"better-economic-numbers-dont-matter-stock-market-obsessed-one-thing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/12\/10\/better-economic-numbers-dont-matter-stock-market-obsessed-one-thing\/","title":{"rendered":"Better Economic Numbers Don\u2019t Matter; Stock Market Only Obsessed with This One Thing"},"content":{"rendered":"

By John Whitefoot<\/a> for Daily Gains Letter<\/a><\/p>\n

\"BetterA raft of positive economic news came in last week; suggesting that the U.S. economy may actually be getting stronger. On Friday, the Bureau of Labor Statistics reported that the unemployment rate fell from 7.3% to seven percent in November, the non-farm employment numbers improved by 203,000, and unemployment claims fell to 298,000. In addition, preliminary gross domestic product (GDP) growth climbed from 2.8% in October to 3.6%, soaring past the three percent forecast.<\/p>\n

Normally, this kind of news would help shore up the stock market and send it rallying higher. But that\u2019s not what happens in a Federal Reserve<\/a>-fuelled market; in fact, the Dow Jones Industrial Average<\/a>, S&P 500, and NASDAQ all responded with a losing streak.<\/p>\n

Why the fear? Two words: quantitative easing. Since implementing the first round of quantitative easing in 2009, the Federal Reserve has flooded the market with over $3.0 trillion. Quantitative easing has translated into artificially low interest rates. The low-interest-rate environment has also been the primary fuel behind the stock markets\u2019 unprecedented rally.<\/p>\n

The Federal Reserve has said it will begin to taper (not discontinue) its quantitative easing strategy when the markets improve, which many believe means an unemployment rate of 6.5% and inflation at 2.5%.<\/p>\n

Not surprisingly, the sharp decrease in unemployment has made the markets jittery. Tapering quantitative easing bond purchases means interest rates will increase, which could put a wet blanket on the U.S. economy. Back in May, the Federal Reserve hinted it was thinking about tapering quantitative easing; Wall Street responded by sending the markets lower, and banks responded by sending mortgage rates higher.<\/p>\n

So you can see why an irrational Wall Street would be stressed about an improving economy and a pullback in quantitative easing. The markets would have to stand on their own merits\u2014namely, revenue and earnings. That\u2019s something it isn\u2019t ready to do just yet.<\/p>\n

They may not have to for a while yet, as the numbers needed to trigger a pullback on quantitative easing still aren\u2019t firmly in place. Two Cleveland Federal Reserve researchers do not think the unemployment rate will get to 6.5% until the first quarter of 2015 at the earliest, but most likely no later than the third quarter of 2015. The inflation rate<\/a>, meanwhile, may not break through 1.75% until 2016. (Source: Knotek II, E.S. and Zaman, S., \u201cWhen Might the Federal Funds Rate Lift Off?\u201d Federal Reserve Bank of Cleveland web site, December 4, 2013.)<\/p>\n

But, as the old saying goes, \u201cbuy on rumor, sell on news.\u201d However, the losing streak won\u2019t last for long.<\/p>\n

Since hitting a low in March 2009, the S&P 500 has soared almost 165% and is up 26% so far this year. Since hitting a pre-recession high in mid-October 2007, the S&P 500 has climbed 16%.<\/p>\n

As long as the Federal Reserve continues its quantitative easing policy\u2014or rather, keeps interest rates artificially low\u2014the markets will continue to be bullish, and any losing streak will have a limited downside.<\/p>\n

After all, where else can investors go with their money? Thanks to short-term interest rates being near zero, it doesn\u2019t make sense for investors to park their money in bonds or leave it in cash.<\/p>\n

When it comes to a jittery market, it\u2019s always a good idea to hold financially solid stocks with a long history of providing not just capital appreciation and dividends, but also increased payouts; some examples of this type of stock may be Cathay General Bancorp (NASDAQ\/CATY) and Oxford Lane Capital Corp. (NASDAQ\/OXLC).<\/p>\n

Despite all the good economic news, quantitative easing will stick around and the markets will continue to advance\u2014and Wall Street will get it right for the wrong reason.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By John Whitefoot for Daily Gains Letter A raft of positive economic news came in last week; suggesting that the U.S. economy may actually be getting stronger. On Friday, the Bureau of Labor Statistics reported that the unemployment rate fell from 7.3% to seven percent in November, the non-farm employment numbers improved by 203,000, and … <\/p>\n

Continue reading “Better Economic Numbers Don\u2019t Matter; Stock Market Only Obsessed with This One Thing”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-45216","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/45216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=45216"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/45216\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=45216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=45216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=45216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}