Every major political action of this bear market has provided a pop for the market followed by a major sell-off. The original Bush stimulus plan, the election, TARP I, etc. all resulted in short-term pops for the market followed by major sell-offs. It’s clear that investors don’t want to sell or get short in front of the announcement of a stimulus bill. The details are still foggy and the fear of getting caught on the wrong side of a big announcement has dried up the selling and sent the short sellers back into their caves.
The jobs number should be awful tomorrow, but the market seems prepared to rally off bad news. Of course, if the number is even worse than I think (currently expecting -600K) the market could just sink. But I think there’s a good chance we’ll see buying throughout the day so long as the number isn’t disastrous (-700K or higher). I don’t think anyone will want to be short over the weekend in case of big news Monday when the final bill is expected to be announced. I’ll wait and see how tomorrow plays out, but it could be setting up for a sell the news type of event early next week….
UPDATE (9:22AM): As expected, the NFP figure was a big one (-598K vs our estimate of -600K and the market’s estimate of -524K) and they’re shrugging it off. No one wants to get caught on the wrong side of this stimulus bill. The market is rallying on the news, but I wouldn’t chase it here. As is too often the case in bear markets, we’ve gone from 0 to bullish faster than a Ferrari can hit 60 MPH. Oil is getting crushed this morning down nearly 6%. I’d love to be bullish about this stimulus package, but there’s just nothing good about it. In addition, next week is a very light news week. Aside from earnings and the stimulus bill on Monday there will be very little that moves the market and in this environment I’d rather not be forced to wait on corporate news for my market direction – there’s nothing good about corporate news right now….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.