Today’s market action has been odd to say the least. Futures were up well over 100 points heading into the retail sales and jobless claims data. The strength has been attributed to strong international markets, good GDP figures from Europe, the John Paulson bank purchase and the IEA report of higher demand for oil.
In case you missed it retail sales came in at -0.1% and -0.6% ex-autos. Analysts were expecting 0.8% and 0.1%. When the market learned that retail sales were an utter disaster and that jobless claims jumped up to 558K the market temporarily cratered. Econoday reports:
The rate of layoffs is heavy but steady as first-time jobless claims were little changed in the Aug. 8 week, at 558,000 vs. 554,000 in the prior week. The numbers, in a plus, are a little bit below the four-week average, which is at 565,000. Continuing claims fell steeply, down 141,000 for data in the Aug. 1 week to 6.202 million. But the decline is hard to read, reflecting either new hirings and/or the expiration of benefits. The economy may be in recovery or at least is steady but the outlook for the jobs market, and how far it lags, is a serious concern for the economic outlook and for policy makers.
The futures fell 70 points or so, but remained positive. The market then opened and immediately tanked. S&P futures dropped as far as 998 before rebounding miraculously on no news. If you had told me the retail sales figures would have come in negative I’d tell you that the S&P would have at least retraced all of yesterday’s gains. In an economy that is 70% consumers you have to begin to wonder how long the market can ignore these incredibly weak retail sales figures. And more importantly, is the market resilient or just downright complacent? This late into a rally I am more inclined to side with complacency. This market should be down well over 200 points today on this news that puts a mighty large dent in any v-shaped recovery theories. Efficient market? Keep dreaming….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.