Bad News is Suddenly Good News
For about half of Tuesday’s session, I found myself wondering why on earth stocks were going up. After all, almost all news has been bad news lately and the market had been trading horribly of late. So, with a batch of news that could easily have been seen as a little on the weak side, I thought it was odd that traders had suddenly and without warning flip-flopped their approach.
Consider the news that traders had to work with before the market opened yesterday. First there was China’s PMI (Purchasing Managers’ Index – designed to indicate the state of the manufacturing sector). Although this was only the “Flash” index done by HSBC, it still carries a fair amount of weight. So, given that readings below 50 indicate contraction in the sector, would you expect that an August reading of 49.8 would be cheered? To be fair, this game is really all about reality vs. expectations and since the August reading was up from July’s 49.3, I guess some applause was in order.
Next came the European PMI’s. Let’s see, the Eurozone’s reading was 49.7, which was down from July’s 50.4 (and then there’s the whole line in the sand thing at 50.0), France’s level was 49.3 (down from 50.4), and Germany’s reading held steady from last month at 52.0. But with the exception of France, all these readings were, wait for it… above consensus.
Given that the Asian markets were all up nicely, the European bourses (save Italy) were following suit, and the S&P futures were also up strongly, my assumption was that these numbers were being cheered due to the fact that they weren’t disastrous. Thus, I figured “not terrible” was the new good.
However, as the day – and the data – continued to flow, it became apparent that my assessment might be off. You see, the German ZEW Current Conditions Index had fallen off a cliff (from 87.0 to 53.5 – ouchy). Then New Home Sales in the U.S. stunk up the joint once again. This was followed by a miserable Richmond Fed Index (the lowest level since June 2009) and word that Finland had decided to stand firm and was willing to bail on the Greece deal if need be. To which, the U.S. stock market responded with, “Bravo!”
So I took some time and pondered as to what was occurring. Hmmm… Bad news is suddenly good news… Oh, that’s right, because it means Mr. Bernanke is more likely to don the knight suit and mount the white horse on Friday! I slapped myself upside the head for being silly enough to think logically, and suddenly everything made sense again.
So there you have it. If we get a lousy Durable Goods report this morning, stocks may go up some more. Another weak FHFA number might be just the ticket for another 300-point jaunt on the Dow. After all, more bad news means more QE, right? (Or, will traders come to their senses and recognize that a stronger-than-expected economy is actually a good thing too? Stay tuned.)
Turning to this morning… Overseas markets are mixed with Asia moving lower on Moody’s downgrade of Japan while European bourses are slightly higher, this despite another raft of disappointing data across the pond. Here at home, the futures are pointing lower at the present time.
On the Economic front… Orders for long-lasting goods rose in July. The Commerce Department reported that Durable Goods orders increased by +4.0% during the month, which was above the consensus expectations for an increase of +2.2%. When you strip out the volatile orders for transportation, orders rose by +0.7%, which was below the consensus for -0.4%. The June reading was revised higher to +0.6%.
David Moenning
Editor: The Daily Decision
