The data calendar continues in something of an alternating mode. This week we have a concentration of the important economic releases. We also have daily appearances by Fed members. This provides a daily opportunity for pundits to interpret the news:
Can markets finally celebrate good news?
Prior Theme Recap
In my last WTWA I predicted special attention to housing sector issues in a week without much other data. Instead, the Brussels attacks quickly dominated the news. When there was not much additional information, the stories featured the reactions of one and all. Doug Short notes the three-day losing streak in his excellent weekly chart. (With the ever-increasing effects from foreign markets, you should also add Doug’s World Markets Weekend Update to your reading list).
Doug’s update also provides multi-year context. See his World Markets Weekend Update for more excellent charts and analysis.
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.
This Week’s Theme
The economic calendar includes all of the most important reports. Fed participants will be out in forces. There will be plenty of fresh news to ponder.
In theory, the avalanche of news could lead to a dramatic market move. In practice, it usually works differently. The economic data are mixed. The Fed speakers disagree. Pundits are free to interpret the evidence through the prism of their predispositions. The difference in these viewpoints leads me to conclude that many will be asking:
Will good news be good for stocks?
And of course, the corollary – will bad economic news get a cushion from expectations of slower fed tightening?
Viewpoints
The basic themes are familiar.
Challenge
Your conclusion about how stocks will react is a function of what you believe is driving current market action. We do not get paid for knowing yesterday’s news, but it is important to understand the sources of market reaction.
Suppose at the start of last week, people could go “back to the future” and know about the Brussels attacks. What do you suppose would have been their market forecast? In actuality, when everyone knew the answer, we heard many explanations that events like this were now accepted as normal risks. I do not like the very idea that such events are “normal.” I understand the theoretical concept that the market significance is small. With that in mind, my point is how much easier it is to make statements like this after the fact.
Let’s try next week instead. Suppose the market has a significant rally. Many will say that it was end-of-quarter window dressing. But we all know the quarter is ending. If you expect a window-dressing rally, say it now – not as some know-it-all explanation next weekend. If the market declines, I suppose it will be called “profit taking.”
As always, I have my own opinion in the conclusion. But first, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information.
Last Week’s Data
Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something really good. My working definition of “good” has two components:
The Good
There was some good news in a light week for data.
