Thursday, June 12, 2014

Strong Stock Markets and Weak Economies

The divergence between the economy and the stock market continues.  Retail sales didn't meet expectations, coming in barely positive.  Second month in a row of subpar retail sales numbers.  I thought there was suppose to be a spring bounce back from the bad winter weather.  The excuses for subpar economic numbers seem endless, but at some point, the economy has to perform.  And not in just creating a bunch of McJobs.

There is a reason the bond yields refuse to go as high as many expected.  The economy just isn't strong enough to support those higher yields.  The wealth effect from a rising stock market is last year's news.  Unless you get another 30% surge in the S&P this year, you're not going to get that big wealth effect.

We have another gap down today, thanks to the retail sales numbers.  I am noticing a paradigm shift in bad economic data.  Last year, bad econ data was hailed as halting the taper, keeping the Fed easy, but now that the taper is almost complete, its just viewed as signs of a weak economy and potential weak earnings, and we are actually going down on bad econ data.

I continue to view Treasuries as a good trade here, with the push up in yields over the past several days, and with the 10 and 30 year bond auctions soon to be in the history books.  The top in stocks will be choppy, for sure, so I am not shorting yet, but perhaps next week after the FOMC, it could present a good shorting opportunity as we get closer to triple witching day.

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