Always Look On The Bright Side Of Life (And News)

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.

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