EmailEquity markets are counting on central banks and governments to boost stock prices.
The payroll data on Friday were bad. They were so bad that stock market participants have bid up equity prices on the belief that the Fed will have to conduct another round of quantitative easing. The increased liquidity through such action isn't expected to boost economic growth much, but it is expected to boost stock prices in what amounts to a mini-bubble.
Asia has the same orientation. Chinese economic data over the weekend were worrisome - but only from an economic standpoint. The data were bad enough that equity investors are assuming that the Chinese government will have to provide more policy stimulus. The Chinese stock market therefore rose 0.5% on bad economic data.
It is important that investors understand what is happening in the stock market, and not get carried away with the simplicity of the daily uptrend.
The earnings and economic outlook are getting worse. That is being ignored. The reason the equity markets are rising is because of the belief that central bank action will in itself boost prices. The action by the European Central Bank last week provides some legitimate bullish support in that it will reduce the risk of a credit implosion in Europe. That is a good thing.
But over the long run, the fundamentals take hold. The first two rounds of quantitative easing didn't boost either the US economic or profit trends. A third round won't either. The outlook for the core fundamentals is poor.
S&P futures suggest a slightly lower open. There are no economic reports today other than the consumer credit data at 3:00 ET. There is no major corporate news. The Fed policy committee meets this week with an announcement due Thursday afternoon. It remains to be seen whether the economic outlook is so bad that stocks will get a further boost this week.
Founder and Chairman, Briefing.com
