"The stock market rally worth about 300 points on the Dow over the past three sessions is "totally irrational," according to the curator of the Money Market Index economic barometer."
"In particular, investor enthusiasm over Friday's monthly jobs report from the government is misplaced because a large portion of the 163,000 new non-farm jobs reported are temporarily and likely to vanish soon, says Dan Geller, chief research officer of the index."
"The rally on Friday after the release of the employment figures and the consumer confidence index really has no economic merit," Geller says. "It's totally irrational."
"Like the surge in food service and other hospitality positions, the market surge will prove temporary as well, he says."
A few reactions:
1. How much of this is the anti-Obama bias where in the long term some may actually want to see the market fall in the short term to give us a President Romney? By the same token, a lot of market participants have tried to claim that the recent boos in the markets is an presumption of a Romney victory.
Whatever Geller's angle, the market has actually been rallying a lot longer than the last few days. Despite the premise that it might be that the market is presuming a Romney victory-under the premise that the problem is all that Obama regulation, ACA, "uncertainty"-ie, structural issues-that are killing the economy-there is actually a strong correlation between markets that rally in an election year and an incumbent win.
2. Yeah, it's an anti Sumner view by Geller, whatever it's merit. It's always fascinating to me how much less trouble the market guys themselves have in calling the markets irrational than the economists.
The other angle of course is what this means in terms of Fed action. Some seem to want it so bad they almost don't want to see good news as it might discourage the Fed. But as Geller's analysis above shows, there are plenty to argue that the numbers on Friday lacked merit. Only time will tell on that, of course.
"Far from making the outlook clear, last week’s somewhat better-than-expected jobs report appears to have muddied the outlook on Wall Street for what Ben Bernanke and the Federal Reserve will do next."
"None of the data meaningfully changed the growth forecast. The government reported 163,000 jobs created in July, about 60,000 more than forecast, but the unemployment (explain this) rate ticked up to 8.3 percent from 8.2 percent."
"Add up all the other data from the week, and Macroeconomic Advisors concluded that second-quarter growth will now be revised upward by a meager tenth of a percentage point to 1.6 percent. It means the economy still finished the second half of the year stuck in the mud. There also was little change in the outlook for the third quarter, with many forecasts predicting only a slight strengthening to around 2 percent."
"What is striking is the divergence now in opinions when it comes to the Federal Reserve (explain this). Last week the Fed inserted language in its policy statement that it would “closely monitor” economic developments, a clue to some that it could move between meetings or would almost certainly act between meetings."
If, however, markets really are a forward indicator then maybe things aren't as bad as the worst prognostications. I can say that I have seen this theory of forward looking markets empirically verified in the past-both in 2007 where the markets started skidding before the real economy and in March, 2009 when the market bottomed before the economy did months later.
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