Policymakers have been spreading optimism around like manure in a farm field. And apparently it is gaining considerable traction amongst consumers whose expectations about job prospects 6 months from now have improved dramatically.
Come October 2009 Obama’s fiscal stimulus kicks in and should spur aggressively hiring. This is indeed a bullish input. Still, job losses in the real economy are expected to more than offset any job creation the govt does under the Obama program. As put by Moody’s Economy.com: “Assessments of labor market conditions are firming, but they are likely sending false signals… The labor market details point toward a decline in the unemployment rate-a stark contradiction of the data on initial and continuing claims for unemployment insurance benefits.”
Still, as market participants, we can’t argue with the tape, i.e. - we can’t argue with forward looking perceptions and with what is. “We are confident we are in a bull market,” as Birinyi said last week. Confidence and optimistic forward expectations may trump some very active bearish momentum in the short and intermediate run that will likely run through the Q2 financial earnings season and into 1H 2010 when consumers’ job prospects and y-o-y earnings comps amongst financials take a nosedive. The bearish momentum we will detail towards the end of this report.
The daily E-mini SP500 “monthly consumer confidence” chart below shows rising consumer confidence lows since Feb 24 2009 consumer confidence report. Market participants should be aware that a rising stock market is a bullish input for the Michigan Consumer Sentiment Survey but not for the monthly consumer confidence report. For the Michigan sentiment survey this is a self-reinforcing mechanism that feeds on itself. The fact that the stock market has rallied nearly 40% since March has been a bullish input for the Michigan sentiment survey in May. The next Michigan consumer sentiment is this week Friday May 29.
Between now and next Friday’s NFP report, the bias should be bullish with all trade above today’s consumer confidence low at 877. The June NFP report out at the end of next week will be bearish particularly with big revisions to the April jobs report that added in way too many new jobs based on the birth/death model and seasonal adjustments. A June swoon following the June NFP report would presumably be brief however, as consumers are expecting the job front to improve by Oct.
The pullback will also be brief too because by end of month their will be a two-day FOMC meeting which the stock market will most likely go bid into. After the June FOMC meeting, the stock market will likely falter briefly again into the July NFP report, before staging another rally into the manipulated financial earning season.
