Some of you may be wondering why I headlined today’s market strategy piece with the title of a Monty Python song. As a long-time fanatic of their comedy, much of their work is burned into my memory. It occurred to me that it is an apt descriptor for the markets.

Last week we asserted that one of the keys to the continued uptrend in equity markets was investors’ ability to put a positive spin on almost any piece of news. That thesis was put to the test today with today’s release of weekly initial jobless claims.

To put it bluntly, the numbers stunk. Expectations were for a slight uptick to 789,000 from last week’s 787,000. Neither of those is a good number, but markets constantly measure themselves against expectations for earnings and economic statistics on the theory that those expectations are already reflected in current prices. There is no way that today’s report of a jump to 965,000 was discounted into the general market consensus, though. Nor was a report of continuing claims at 5.271 million vs. a 5 million expectation. That represents an awful lot of people out of work!

Not that traders minded, though. Index futures were trading higher before the report and then dipped somewhat. Mind you, they never actually turned lower and recovered within minutes. Markets yet again ignored a meaningful but inconvenient piece of news. The reason for that is the biggest prop to valuations of all – hopes for increased fiscal stimulus.

Remember the hypothesis that all news gets a positive spin. I propose a corollary, that markets can continue to rally on positive hopes even if those hopes already appear to be priced in. It was widely reported that President-elect Biden could release the details of his stimulus proposal this afternoon. Is there anyone who was not expecting the new administration to focus on a stimulus package? Is it also reasonable to expect that those plans, which have been prepped for weeks, will change meaningfully based solely on today’s numbers? The answer to both those questions is “probably not”.We will get a clearer read on that answer if and when the new stimulus plan is released later today.

We will also get a clearer read on the “all news is good news” hypothesis quite soon. Another quarterly earnings season begins in earnest tomorrow morning when J.P. Morgan (JPM), Wells Fargo (WFC), and other major banks kick off the parade of 4^th quarter and 2020 annual numbers that will be released by a host of market-leading companies over the coming weeks. Markets tend to do a better job of pricing in earnings and revenue expectations than they do political considerations. That analysis is more straightforward, and the outcome is more immediately reflected in the price of the company in question. Political considerations are usually second-order effects since the costs and benefits usually do not accrue directly to specific companies.

Fiscal stimulus, however, is one of the few that can have a direct effect upon stocks and markets. We have seen ample evidence that many of the stimulus checks found their way into stock markets in relatively short order. As we await the release of the President-elect’s fiscal package, we will know soon enough whether this is a typical “buy the rumor, sell the news” type of event, or one of the newfound, “buy the rumor, buy the news” types.

For further reference:

Heads I Win. Tails… I Also Win

Weak Employment, Over 4,000 Dead – Of Course We Opened Higher

Before We Were So Rudely Interrupted…