SMI Visitor's Blog       

Welcome to the SMI Visitor's Blog where you'll find selected excerpts from our Member's Blog, plus occasional posts created especially for our visitors.

For SMI Web Members, click here to go to the SMI Member Blog.

« Blog Home

The economy's strong! Oh no, it's weak! Wait, it's... whatever...

Whatever the market is doing, the financial press will make up find an explanation. That's their job.

Last Thursday, the market continued its upward move and the WSJ provided an explanation: the economy is looking stronger.

Investors have begun to assume a more bullish view of the U.S. economy in recent days after a series of surprisingly good reports on manufacturing, retail sales and jobs.

That followed a string of disappointments and worries about global growth in general. Now, many say they have renewed confidence that the second half of the year will be strong.

"The soft patch is now in the rear-view mirror, and the market is resuming to a more optimistic stance where it is pricing in more positive growth," said Howard Ward, chief investment officer for the Gamco Growth Fund. "It's going to be a much stronger second half than the first."

Then on Friday, the market is dropped and the WSJ explained why: the economy is looking weaker.

The U.S. economy barely added jobs for the second month in a row in June and the unemployment rate rose to the highest level this year, adding to concerns the labor market will take years to recover....

The jobless rate, which is obtained from a separate household survey, increased for the third straight month to 9.2% in June from 9.1% in May. It was the highest level since December 2010. There are 14.1 million Americans who would like to work but can't get a job. The choppy two-year-old recovery is proving to be one of the worst since the 1930s. It has been too slow to make up for all the jobs lost after the financial crisis of 2008 and 2009....

Manufacturing employment remained weak, adding 6,000 jobs. Economists were expecting a rebound as disruptions to manufacturing production stemming from Japan's earthquake should be easing. Employment in the battered construction sector was broadly unchanged. The housing sector remains a big drag on the economy.

All this to say, as we've pointed out before, that financial reporters have a tough job. They can't possibly know all the reasons that millions of individual and institutional investors decide to buy or sell on any given day. But they're expected to come up with an explanation. So they do.

They emphasize the news of the day that seems most likely, in their view, to be responsible for said buying and selling. If the next day requires a completely different view of reality to explain the market's behavior, that's not a problem — that's just the news business.

So, are investors optimistic about the economy, or are they pessimistic? Some of each. Always. Thus the continuous tug-of-war between buyers and sellers. That's why you should largely ignore the press accounts and think inside-out.

Powered by Movable Type  |   Subscribe  |   Email Updates