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Dan: Remember what you are celebrating – $SPX

By - - Market Sentiment on October 5, 2015 10:45 AM Follow-Ups DanInitial

Since Friday morning’s September jobs data the S&P 500 futures are up about 3% (including this morning’s 70 bps gains) as investors celebrate unexpectedly bad economic data. This morning, European equities are ripping (the Euro Stoxx 50 is up 3%) on weaker than expected PMI data:

bloom

I want to reiterate some comments that I made in early July. At the time, the SPX was trying to make a new high, and then came the August swoon. From: MorningWord 7/2/15: Don’t forget what you are celebrating:

I hate to go all Rick Santelli on you, but come on people. At this stage of the game it’s insane to see buyers of equity futures based on the possibility that one piece of data may put a Fed rate increase on hold for a few months.

I’ll just leave it for this before we sign off for the July 4th holiday. With the market still near all time highs you should only be buying stocks or equity index etfs/futures because you believe the U.S. economy and corporate profits will soon break out from the slow growth that we’ve seen throughout most of the recovery. If you are buying because you think you have a few extra months of ZIRP, then you aren’t really investing, you’re playing musical chairs and assuming you’ll find a seat when the music stops. It’s entirely possible the Fed is unable to exit ZIRP at a perceived opportune time, and will have to do so in a mediocre economy. If those are the conditions you want to be in while committing new capital to stocks near highs, then good luck with that.

Riding the Fed’s coattails is getting a little long in the tooth. This is kind of evident with the equity returns we’ve seen year to date. Don’t Fight the Fed works both ways. Everyone knows it’s coming, a few extra months no longer matter. For stocks to go higher from here we need to see good economic data. Really good.

When buying stocks on bad economic data points because of the Fed, don’t forget what you are celebrating.

There has not been a single positive piece of economic data released in the last 72 hours. At this stage in the bull market investors should be looking for good data, indicating that the economy can stand on its own and feel better about the global economic outlook. That would be the catalyst for higher corporate profits, leading to higher stock prices. Not that the Fed may extend ZIRP for a few months.

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This is Part 2 of a 3 part Debate on Market Sentiment