The impressive global equity market rally continues apace.
Wall Street sentiment seems to be an odd mix. If we get bad economic data that is good for stocks because rates may not go as high. Which completely ignores the real-world conundrum of a strong economy being the ultimate bedrock of corporate profits?
In looking at the recent price action, it is clear most traders and some funds just want to buy based on the firm belief that the US Jobs Data will result in higher stock prices. It will not matter if jobs disappoint or impress, they simply will find a way of seeing the data as a reason to buy.
Sounds illogical, that’s because we are emotional creatures pretending to be logical?
We can always find the logic to back our emotional views and decision. Therein lies the trick for greater wealth. It has never changed. Know thyself.
What does all this mean for stocks? Well, all short-term traders will be long the market before, during and probably after tonight’s data release. Which, of course, will cap off an incredibly whip-saw and volatile week. That nonetheless looks like ending higher than it began.
The problem will be next week. When all the longs begin to realise that nothing has changed and jobs data is a lagging indicator in any case. We will still be faced with extreme food and energy prices and a Federal Reserve that is willing to keep raising rates even if it causes “some economic pain”.
So said US Fed Chair Jerome Powell, who once was certain inflation was transitory.
Commodities remain a very strong buy.
Not because the world economy is strong, but because entrenched supply chain disruption is more likely than not. And the substitution for lost European energy supplies through sanctions will be highly problematic. Leading to higher prices still. and possibly even the occasional power shut-downs.
While stocks are looking across the valley to ‘everything will be fine’, commodity prices are telling a very different story.
We remain steadfastly bullish on Gold, Oil, Platinum and commodities generally.
Markets thought they had fully priced the current crisis, but they were wrong, and now will gain further as nations begin to compete for both energy and food reserves.
The great race is on. And not a pretty one at that. Expect equities to resume the recent major down-trend next week.
After bizarre jobs data euphoria is out of the way.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
