Is it Oil's Fault?
So, stocks certainly didn't rally on the first day of the month. In fact, as oil prices ramped, stocks sold off hard. The talking heads are saying that higher oil prices might jeopardize economic growth. That's a very simplistic way of looking at the situation.
Of course nobody wants to pay more for gasoline. We don't want to see higher transportation costs passed through to prices. Oil prices are just the tip of the iceberg.
The bigger issue is that prices are rising for just about everything, except houses. And as much as he might want to say otherwise, Ben Bernanke's monetary policy is part of the problem. Bernanke can say that any inflation will be temporary all he wants. The fact is, emerging markets, and possibly even Europe, are raising interest rates to fight inflation. And the Fed is still sticking to its easy money policies.
What happens when the Fed's QE2 ends? What happens when there is no choice but to raise interest rates?
In my opinion, that's what's behind the recent weakness for stock prices. That, and the fact that we've had a steady 6-month rally.
*****The ADP private payroll report came in much better than expected this morning. The market was expecting 165,000 additions to private payrolls. Private companies actually added 217,000. That's a great number. It will be interesting to see how Non-Farm Payrolls come in.
The market is looking for 190,000 total new jobs. But we should note that this number has consistently missed expectations for months. Part of the reason is that the Federal government is cutting jobs. The Challenger report on announced firings says that 16,380 job cuts were announced at the Federal and State level.
Given the newfound austerity in Congress, and increasing indebtedness of some states, this is a trend that will probably continue.
There's no doubt that both state and Federal governments have to start dealing with debt. And that's not going to help the economy in the short-term. Fewer jobs means less spending and slower economic growth.
*****I’ve told you about some of the trading gains Jason Cimpl has racked up for his TradeMaster Daily Stock Alerts members. Like 40% on CCME, 50% on ALJ and 55% on HILL.
Jason was able to nail down these outstanding gains largely because he was able to stick with the rally that started in late August. Even though a lot of traders were skeptical of that rally and repeatedly called for a reversal, Jason stayed long and strong and delivered.
That’s because, quite simply, he knows what to look for before a rally reverses.
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