How can it be that the world is simply turning a blind eye to the bad news flooding the market. Admittedly, industrial production is far less sexy as compared to a complete melt-down of the global economy or the complete collapse of the banking system. That much is true. But after 8-9 months of bad data spilling from China's economy specifically indicating that production is grinding to a halt; how can the market sit idly by? It can't. It's worse ! The market is actually heading higher !
Ok, then maybe the market simply doesn't think that China as a growth engine is as important as it was about 10 years ago. Fair enough. Then why is that when the US ISM report is terrible, US indices (for the most part) took it in stride and even continued to rise yesterday? Despite taking it on the chin on Monday, after the ISM was published, the Dow actually headed higher on Tuesday. Albeit a moderate rise of just 0.52% but a climb higher is a climb higher. It's an affront to the economic data. Economists must be scratching their heads asking, how can it be that investors are simply not reading the writing on the wall? Are investors truly of the belief that services (mainly financial) are the new growth engine? Is technology really going to put bread on the tables of billions in Asia and Africa to allow them to buy iPhones and the new Wii?
Smart economists know that the answer is "no". Without production, less money trickles into the lower echelons of the socioeconomic ladder of any community or country. So if now we are also getting news that the European PMI is down and even the Brazilians are showing negative data - what more do investors need to know before they pull the plug on this recent optimistic surge? We aren't really sure yet what will trigger a correction. However, all economic signs are pointing to this possibility. It's not like 2012 is exactly the banner year for stocks. By no stretch of the imagination can we label what has transpired this year as a "good trading year". But stocks are up despite Europe. Stock indices are up even as industrial production is slowing. Growth is being hurt and investors are shrugging it all off. Could employment be the key? Well maybe we are asking too many questions. But we do think that the answer lies here; employment figures. Our belief is that investors are placing all the weight on employment probably based on a somewhat convoluted rationale that jobs are shifting away from industry and into services (technological and otherwise) and as such, the global industrial slowdown is NOT hurting the GDP per capita.
We believe this to be false and won't hold up over time. But for now, traders of the world can rejoice in the fact that markets are riding a strong wave and unless the Non-Farm Payrolls in the US surprise to the downside, this surge will likely carry us into the coming weeks. So traders of all types, whether you trade stocks or binary options, should take a close look at employment data and leave the rest to conjecture. It could be that a new focus will surface, but for now it looks as though employment is the key to all future movements and so long as no news becomes available - traders will continue to buy the dream.
The preceding article was authored by David Fielder (www.whyoptions.com).