When good news is bad news ... and vice versa

by Wayne Ferbert on June 5th, 2013

Today’s sell-off was propelled with some real conviction. All afternoon, the market kept making lower lows and lower highs. The month of June is off to a shaky start. This is a key week for economic data as the most watched economic data point is announced on Friday: the May monthly jobs report.
The Fed has already said that unemployment will be the key to an economic recovery – and that rate would determine when the Fed would start to cut back on Quantitative Easing (aka Tapering).
But the market is conflicted. A cut back on QE would reduce the fuel for the equity fire. The Fed’s efforts have pushed money towards risk assets like stocks – which has been what has propelled this market. So, should we be rooting for good employment data or bad employment data? Is a healthy economy good for the stock market or not?
These are questions I never thought I would have to ask. The market is schizophrenic about what it wants from economic data. But one thing is for sure: the market looks A LOT more data driven these days – versus news driven. We prefer a market being driven by data as the moves are usually more predictable.
Today’s news was the very weak data on manufacturing – mostly driven by weak demand out of Europe. This news was viewed as legitimately bad for company’s that rely on International sales – and so a sell off ensued (probably fueled by some panicked profit takers – can’t say as I blame them).
Let’s hope the Fed can execute on an un-winding of QE thru some well organized Tapering effort. If they can, then we can finally root for good economic data – with an expectation that the market will respond favorably.
In the meantime, this Friday is the monthly jobs number. I am rooting for a good number – so the Fed can build momentum towards the Great Tapering. However, the pain in the market in the meantime might be real.
Keep hedging.

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