The S&P 500 inched up slightly, very slightly. While it gained 0.16%, the Dow Jones Industrial Average and the NASDAQ both lost some ground. Volume was very light, continuing a multi-year trend where price rises are NOT supported by rising volumes. Instead, they’re actually contradicted by the eroding volumes. And volatility as measured by the 30 day VIX was essentially unchanged, and still stuck at relatively low and complacent levels.
US economic data is not improving, on average. The Dallas Fed manufacturing survey badly disappointed. Consumer confidence missed expectations. The Chicago PMI came in below 50, at 49.9, which was the lowest level in 33 months. ISM Manufacturing beat expectations, but only slightly. Initial jobless claims are still stuck in the upper 300,000 range which represents a weak economy. Unemployment ticked higher, back up to 7.9%. And while payrolls were larger than expected, half the jobs were conjured up by the birth/death computer model. What’s worse, average hourly earnings missed badly. This meant that after inflation, real earnings were negative on a month-to-month basis. And on a year-over-year basis, nominal earnings grew at only 1.1%, one of the lowest growth rates in US history.
This is a recovery?
Technically, the downtrend that began in September is still in effect. Last week ended on a down note and most stock indices ended the week in negative territory. Momentum is now getting stronger, but in the downward price direction. And breadth is still broadly weakening.
It almost seems as if the markets are holding their collective breath. And the key event that everyone is waiting for is the US presidential elections.
Up until the first presidential debate, Obama was comfortably in the lead and conventional wisdom was that he would at the very least comfortably stumble over the finish line as the winner. And since markets, and Wall Street, liked what they saw from this administration over the last 3.5 years—total and complete support for big banks, big business, and massive money printing by the Fed—then an Obama win would be considered market friendly.
But over the last 30 days, the race has tightened up considerably, to the point where it’s a dead heat. And since Romney has promised to curtail the Fed and its quantitative easing (the SINGLE most important driver of equity prices over the last three years) then they have good reason to worry.
Of course, should Romney actually win, it would be very hard to believe that he would really follow through on his promises to reign in the Fed. Big banks and big finance would be at risk of collapse, and since without their support Romney would not have been able to win the Republican nomination, then it seems more plausible than he, if elected, would be in debt to his bankster supporter and not likely to end the massive money printing programs.
But even if this stimulus continues, other major headwinds remain and will be taking center stage. The US fiscal cliff, the deepening euro crisis, the simmering tensions in the Middle East, and the economic and lately political tensions in Asia (and specifically between Japan and China) all need to be addressed.
And all of these issues are not market friendly.
So as soon as the US elections are over, brace yourselves for a gamut of other market risks.