ISM Services came out this morning; unlike ISM Manufacturing on Monday which is just a fraction of our “new paradigm” economy (12%ish) – investors still seem to pay far less attention to services… as if we’re in America 1964. Meanwhile, services is now the dominant part of the US economy so should be the focus. Again, taking *any* government data with huge grains of salt, ISM Services came in below expectation (yet still slightly expansionary) but the market could care less.
Service industries in the U.S. grew in October at a slower pace than anticipated, a sign growing joblessness may restrain consumer spending. The Institute for Supply Management’s index of non- manufacturing businesses fell to 50.6 from 50.9 in September. The index was projected to increase to 51.5, according to the median forecast of 77 economists surveyed by Bloomberg News.
3 key points under the headline number- new orders, employment, and prices paid.
(1) The ISM non-manufacturing gauge of new orders increased to 55.6, the highest level in two years, from 54.2 the prior month. (that’s a positive) (2) The index of employment dropped to 41.1, the lowest level since May, from 44.3. (that’s a negative, at least if you think jobs matter) (3) A measure of prices paid climbed to 53 from 48.8. (and that folks, is inflation and an offshoot of a weak dollar – bringing products into the country is getting expensive which will squeeze profits)
Mounting unemployment may mean consumer spending will only accelerate with government assistance, indicating the emerging recovery may lose momentum as stimulus fades.
I am now at the point I am wondering if the speculator class would prefer bad news or good – I think they might prefer bad. Why? Because bad news means more and more easy money for as far as the eye can see. Now that we’ve “stabilized”, good news is no longer “good” … it was “good” for a while because it showed that paper printing prosperity (P cubed) could take us back from the abyss. But now good news will mean the potential end of free money and an economy that has to somehow stand on its own. And what is America without free money? [Jun 3, 2009: A Country that Cannot Function Without Easy Money] We’re years away from that point… if ever?
As for the market, we’ve jumped back over the 50 day moving average and the volatility continues – it remains too tricky for me, I’m basically sitting it out as the lemmings rush back and forth – hour by hour. I don’t see what has changed from Monday other than greed to fear and back. While I expect nothing really to change from the Fed statement at 2:15 PM, and my assumption is the market will “love” that – who really knows. Well apparently one firm knows… and today they wanted the market up, so up it is.
The 20 day moving average has dropped severely the past few days and has now fallen from 1070 to 1062 very quickly – market is hovering right around that point. The kerosene is ready, all we need is Ben Bernanke’s match. [Sep 12, 2009: Federal Reserve’s Kohn: We Plan to Keep Throwing Kerosene on the Fire] If we are off to the races for the rest of the year this “break” of the 50 day will again be atypical, and similar to July 2009 when we stood below that level for 6 days only to begin an epic 3 month rally – crushing the bears soul. S&P 1080 and 1100 are the only real resistance levels to the upside once we clear this 20 day – it’s really a market that can go either way from here.
I’ll be glad when this week is over and news events don’t dominate as much. Right now the time frames are really short; many stocks I own in small quantities have thus far simply rallied back to below key resistance – perhaps the fireworks display at 2:16 PM will set them afire and catapult them higher. We’ll see, but I’m taking my cues more from individual stocks at this point, as to whether to increase long exposure. Most say “not yet”.