Don’t Hate the Game and Don’t Call It a “Sucker’s Rally”
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A day after coordinated central bank action sent financial markets screaming higher, Thursday was shaping up as a day of rest and reflection -- and a little bit of giveback.
Major averages were modestly lower in recent trading, on the heels of higher-than-expected jobless claims data and weakness in China's Purchasing Managers Index, which shrank for the first time in three years.
Meanwhile, Europe is still very much in crisis and not even the most wide-eyed optimist would argue the EU's sovereign debt/banking crisis was "solved" by Wednesday's central bank action. At best, the central bankers bought time for the sovereigns - and debt yields on the continent have come down the the past 24 hours - and provided only temporary relief for the short-term funding pressures on European banks.
But don't call the gains this week (remember, Monday was a big up day too) a "sucker's rally", says my Breakout colleague Jeff Macke.
"You can't describe it as 'sucker's rally' because we had negative numbers today," Macke says. "Data for the whole week has just crushed...been so good, so positive," including a big jump in consumer confidence, a strong ADP employment report, a very positive Chicago PMI report, as well as today's generally solid November same-store sales data.
Of course, housing data remains punk and third-quarter productivity was revised down but the data provide "strong evidence the American economy, like it or not, is improving," Macke says.
"Like it or not" may be the operative phrase when it comes to the rally itself. As I mentioned in our Twitter-chat last night, people hate "manipulated" markets -- myself very much included. The idea the Fed is rescuing Europe -- by providing liquidity the ECB refuses to make available -- is "loathsome," as Macke says.
But that doesn't mean the market can't keep rallying.
To Macke, "we still have structurally the ingredients for a bull market" with the professionals under-invested or net short and retail investors largely on the sidelines.
"There's a lot to hate about what the economy and Fed have been doing since at least 2009; but you can't stay short stocks forever because of what 'should' happen," he says. "The higher we go -- if we hold these gains...it's going to get hideous if you're hugely short."
Along with easy money, fund managers' fear of underperforming their benchmarks and their peers -- a.k.a. "performance anxiety" -- are the two most powerful forces on Wall Street.
And as the calendar flips to December, we have both, in spades.
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com
