These days we are presented with a classic snapshot of
the chaos that nurtures volatility, that unruly market behavior that undermines
logic and defies any rational explanation for a trend. The culprits are
numerous and while the efforts may be in earnest it cannot be ignored that
those who speak for us are often so confident as to drive me to pine for some
good old fashioned doubt.
Consider the FED, and their newfound passion for passion
once again perfectly orchestrated traditional and social media only to confuse
the markets by showering investors with ambiguous language suggesting stock
valuations being too high or the possibility (kinda, sorta) that rates might
rise sooner rather than later. Certainly this is important, as the rise in
interest rates is generally accompanied by a rise in the dollar and neither is
very good for the stock market, which has not had a reasonable correction in a
few years. But as caution prevails so too will stocks follow the path of least
resistance, which for now is up. Take one for the doubters.
As I’ve often noted in my commentaries the interest rate
markets normally don’t need the FED to send rates higher, which is exactly what
has been happening for the past three weeks. The first pitch was made by a
group of well, albeit, self-advertised activist investors lamenting the
unsustainable conditions of European interest rates, especially German bonds.
This precipitated a sympathetic rise in US bond rates that was so strong as to
effect a slowdown in mortgage applications as well as throwing caution to the
wind in the minds of some bullish stock investors. And stocks which in a
valiant attempt to shrug off the recent rise in interest rates with some unruly
volatility early in the week, managed to find their footing as commodities and
a weaker dollar gave hope to the armchair economists looking for clues to
future of the economy. Doubters to the rescue.
For now I believe much hinges on employment, my benchmark
for the strength of the economy. As far as the recent unemployment data suggest
I found the number to be a mixed blessing. While the headlines focused on the
good payroll growth, the more relevant details were the downward revision from
last month’s poor showing that includes the loss of nearly 50,000 workers
related to the recent declines in the oil and gas industry. And the
participation rate continues to decline to levels not seen in decades. Coupled
with recent declines in consumer confidence and spending and it is possible to
be confident that a margin of healthy doubt about the markets is in order.
Sooner or later the markets are going to reflect a real
economy in need of higher rates. At that time the markets will correct as
they’ve not done so in a very long time. Therefore the question is not if, but
when. In the meantime there is still value to be found in the broad markets,
and room for a little bit of doubt, just for good measure.
