Shift in Sentiment?
The "slowing growth" theme we've been discussing has now worked its way into the headlines. Today's ADP report that the private sector added a less than expected 179,000 jobs in April is being billed as a sign that the recovery is not moving as fast as we'd like.
Today's oil inventory report is also being interpreted as measure of slowing growth. Crude inventories rose 3.2 million barrels last week, higher than expected.
But what's ironic is that oil inventories have been consistently rising for months and it's had no impact in pricing, or on economic growth sentiment.
This should tell us that the interpretation of economic data can be very subjective. We may in the midst of a sentiment change toward the economy and the stock market. And don't miss the fact that such a shift is taking place as the S&P 500 has pushed toward an important resistance level at 1,377.
There's also the "sell in May" theory which clearly happened last May.
*****Also, I know we are not missing the fact that this potential shift in sentiment is coinciding with the Fed's latest revelations that inflation is increasing, QE2 will end in June and interest rate hikes are not imminent.
Once again, the Fed missed an opportunity to tout a strengthening economy as the reason QE2 was ending. Instead, the Fed admitted that QE2 is inflationary and may not provide the hoped-for benefits.
While I applaud the Fed for being candid, the result is that the Fed is seemingly admitting that it doesn't really know what it's doing. Needless to say, that's not a helpful message.
The U.S. dollar has certainly been responding to the Fed's latest statements. The weaker dollar has not translated into higher commodity prices, another bit of evidence that we may be witnessing a shift in sentiment toward stocks.
*****TradeMaster Daily Stock Alerts' Jason Cimpl had alerted me to an important catalyst for the U.S. dollar. The European Union will make a decision on interest rates tomorrow.
A hike on Eurozone interest rates would likely push the U.S. dollar lower. However, if the EU decides to keep interest rates steady, it could lead to a rally for the dollar. Jason tells me the market is expecting a rate hike.
At this point, I suspect a little upside for the U.S. dollar would be good for the U.S. stock market.
