These Bad Economic Reports Aren't Bad Enough to Halt the Market Momentum
But now all eyes are on the retail sales numbers and consumer confidence reports.
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The market is mixed early on Friday, as investors await retail sales and consumer confidence reports, which should provide some insight into the health of consumers. Partly because some believe consumers are becoming more cautious, earlier this week investors had ignored some signs of inflationary pressures in the consumer price index and producer price index reports.
The logic is that bad news on the consumer front is likely to be a market positive because it will provide further justification for a dovish Fed. The market has been able to handle the hot PPI report, because it is not viewed as being bad enough to stop upcoming rate cuts.
The bears have been desperately seeking economic news that will trigger a market turn, but they have been overreacting to the data, which indicates some problems but isn’t nearly bad enough to trigger a panic. Tariffs are not causing the economic crisis that was predicted, and one of the theories is that economists have incorrectly calculated how much is really being paid in tariffs so far. According to Barclays, the average of all tariffs is around 9% rather than the 12% that has been widely used. There is the likelihood that it will go up, but it just isn’t bad enough to trigger the response that the economists have forecast.
The incorrect economic forecasting is one issue that has provided a tailwind for the market, but the other is just good old-fashioned momentum. The market trend creates fear of missing out, and the negative economic forecasting creates poor positioning. The two combined provide steady fuel for more buying. There is a big wall of worry, and the market is climbing it steadily.
Another issue that is helping under the surface is the high level of speculative interest in small stocks. There has been a steady supply of small stocks trading up 10% or more on a daily basis for weeks. There has also been strong interest in Bitcoin IBIT and other cryptocurrencies, which is a function of speculative interest. Traders are having good success with high-risk assets, and that keeps sentiment positive.
Major funds are reporting their holding for the second quarter, and that is moving some stocks as well. UnitedHealth Group UNH is higher by 12% and boosting the Dow Jones after Warren Buffett filed that he was a buyer in the second quarter. Several other well-known investment managers bought shares as well.
The market could use a little consolidation and rest at this point, but as we saw on Thursday, dip buyers are jumping in quickly on minor weakness. It is going to be very tough for the bears to gain much downside traction unless there is some surprisingly poor economic news.
At the time of publication, DePorre had no position in any security mentioned.
