GDP, Fed flood inundates Wall Street. Bull market to end?
SANTA FE, N.M., July 30, 2014 – Flooding was big news yesterday in the otherwise-parched American West, swamping among other places parts of New Mexico’s Sandoval County as surprisingly large summer monsoons continue to wash through this desert state where the Maven is staying this week to review the Santa Fe Opera’s current season.
More surprisingly, both Albuquerque and Los Angeles experienced massive water main breaks and resulting sinkholes, with L.A. in particular losing millions of gallons of water as the campus of UCLA was flooded including the interior of their newly renovated arena. It’s like Noah’s Flood all over again.
Likewise on Wall Street today, traders are experiencing a different kind of flood, a rolling information dump of massive performances which some of the usual suspects warn could wash away the bull market just like God eradicated the known world back in the day, except for Noah, his family, and a few of their close animal friends.
With its usual breathless hype, CNBC reports this morning
A stunning acceleration in second quarter growth and a jump in inflation triggered a new round of speculation that the Fed will have to speed up plans to hike rates.
The faster pace of growth makes it more likelythe economy will grow at a better clip in the second half, but strategists do not expect the Fed to change its timeline unless there is a consistent jump in activity….
Second quarter GDP grew at 4 percent, well above the expected 3 percent. Traders focused on the faster pace of inflation at 2.3 percent annual rate, compared with 1.4 percent in the first quarter, as measured by the personal consumption expenditures index.
CNBC’s writers apparently forgot that the first quarter “grew” an anemic negative 2.9 percent. If you do the math, that gives us a six month GDP growth number of 1.1 percent which, annualized, gives us 2.2 percent. That’s well below what this economy needs to get Americans back to work and at or below the Fed’s stated inflation targets, depending on which Fed governor you speak to.
Needless to say, the HFTs are at it, running the market down on those scare headlines, which is part of the reason why we suggested everyone stay out of the markets yesterday, and today, too for that matter. The fear here, manufactured or otherwise, is that if the economy is swell (which it is not), then the Fed will raise interest rates sooner rather than later, putting an end to this inflated bull market’s free government money party.
On that note, the other big news coming later today is the Fed’s latest statement, scheduled to be issued at 2 p.m. EDT today, Wednesday. It’s hard to determine how much of this morning’s market selloff–we’re down about 60 Dow points now at 11 a.m. EDT–is due to the allegedly good GDP news and how much is due to the HFTs front-running inside Fed info in advance of the statement.
CNBC does reassure us that the GDP number “is not expected to have any impact on the Fed statement scheduled for 2 p.m. EDT Wednesday.” Really? So is that why we’re selling off? Does anyone think it’s time for Big Media to start re-hiring all those laid off fact checkers?
Meanwhile, the litany of corporate quarterly numbers continues, with many balance sheets surprisingly good–including a blowout quarter by Twitter (TWTR), up a whopping 8 points or so this morning on unexpectedly massive earnings which none of the pundits predicted.
In spite of the flutterings in the Twitterverse, we’re again laying low today, partially because of current market treachery, partly because we’re busy with the arts and the art scene in Santa Fe this week.
So once again, for any number of perfectly good reasons, no trading tips today. We’d hate to be as wrong as CNBC’s pundits and touts often are, and today is one of those days where that outcome is highly likely.