Market Avoids the Dark Side
Perhaps the most interesting aspect to the current market isn’t necessarily the three-ring circus that is currently playing in Washington or the never ending stream of difficulties across the pond. No, the thing that strikes me the most regarding the action in the stock market is the refusal of traders to embrace the dark side of the debate at the present time.
Think about it. During the Credit Crisis (to which the current debt/deficit debate is being compared by the press and some in Washington) each and every headline was met with a hysterical response in the indices. And just a little over a month ago in early June, traders responded to just about all comments and changes in body language from the leaders of the EU, ECB, and Greek government. In short, the programs were clearly set to sell first and ask questions later.
And while the markets have seen a fair amount of red numbers over the past two days, the hysteria one might expect just isn’t there. The massive sell programs aren’t there. And from where I sit, the fear just isn’t there. As of this writing, the S&P 500 stands a mere -2.3% from its bull market peak. And after two days of “reaction” and “discounting” to the mess the politicians are making in Washington, the market is off just -1.57% from the high for the month. Thus, it would be very hard to argue that the bears are making the most of their opportunities here.
If you had told me two weeks ago that the folks in Washington would have been within a whisker of a deal, but then blew it up, that public deadlines had been set and then missed, and that with six days to go before the current deadline-that-really-isn’t-a-deadline arrives all four parties involved were still fighting amongst themselves, well, I would have expected to see some serious damage in the stock market. I might have expected to see the S&P at the middle of its range (say 1300ish) or worse yet, near the bottom of the range as traders prepped for the worst.
However, it is clear that traders are not preparing for the worst right now. It would appear that everyone, everywhere (including yours truly) expects a deal to get done. Everybody appears to understand that politics in the U.S. is messy and that debates are played out, not behind closed doors, but out in the open for everyone to see (whether they want to or not). The foreign press is having a field day with the daily show put on in Washington with headlines calling the tea party “nutters” and the republicans “reckless.”
Perhaps Winston Churchill said it best about the way the U.S. conducts its political debates: “You can trust the Americans. In the end they will do the right thing, after they have eliminated all other possibilities.”
So, while we are nowhere near a deal on this fine Wednesday morning and August 2nd seems like a lifetime away to anyone waiting for a resolution, those of us in the glass-is-half-full camp will continue to marvel that this market continues to avoid the dark side – for now, anyway.
Turning to this morning… The focus on Washington is keeping the attention off of Europe, where yields in Spain and Italy continue to rise (Fitch also reports that Italy may need additional austerity measures). This might explain the recent sag in the futures and the red numbers in Europe.
On the Economic front… Orders for long-lasting goods fell in June. The Commerce Department reported that Durable Goods orders declined by -2.1% during the month, which was below the consensus expectations for an increase of +2.1%. When you strip out the volatile orders for transportation, orders rose by +0.1%, which was below the consensus for +0.3%. The May reading was revised lower to +0.6% from +0.7%.
David Moenning
Editor: The Daily Decision
