Weekly Market Pulse: The Market Did What?

One of the most common complaints I hear about the markets is that they are “divorced from reality”, that they aren’t acting as the current economic data would seem to dictate. I’ve been in this business for 30 years and I think I first heard that in year one. Or maybe even before I decided to lose my mind and start managing other people’s money. Because, of course, it has always been this way. Economic data represents the past while markets look to the future. And that future is not necessarily the one you believe will unfold but one that millions of people form through their buy and sell decisions. You can no more predict what those millions of people are thinking than you can the winner of the next Super Bowl. Well, actually predicting the Super Bowl the last couple of decades has been a lot easier. Just see what team Tom Brady is on and bet on that one. Unfortunately, we don’t have any Tom Brady’s in the markets. The guy who looks like Tom Brady this year may well look like Kim McQuilken next year. Who? Or he might turn out to be the next Bernie Madoff, who finally got his just reward last week.

shallow focus photograph of black and gray compass

Image Source: Unsplash

And so it was last week again as we got a CPI reading of 2.6% yoy (above the Fed’s target!), import prices up 6.9%, export prices up 9.1%, retail sales up 9.8%, Empire State survey up to 26.3, Philly Fed up to 50(!), jobless claims down nearly 200k. All of these reports that point to higher inflation and faster growth produced a market reaction that seemed to defy logic. The dollar was down on the week while bonds rallied, neither of which make any sense based on the present data. That retail sales report was just gangbusters, up 17.1% versus the pre-COVID high in January of last  year. And I was wearing bell-bottoms the last time the Philly Fed hit a number that high. So why didn’t the bond market react as so many expected? All we can do is speculate – we can’t get inside the heads of all those traders who bought bonds and sold the dollar – but it does seem that the bond markets don’t think the pace of recovery is sustainable. No kidding and buy the rumor, sell the news.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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