With the Q2 earnings season winding down and nothing major on
the economic calendar in the coming days, the stock market may
simply be lacking in catalysts. The service sector ISM reading
coming out a little later today could be move the needle a bit,
but it's not material enough to have any lasting effect,
particularly after last week's mixed economic data.
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Last week's manufacturing ISM report was very strong, but that
was more than offset by Friday's soft jobs report. Not only the
headline jobs tally came short of expectations, but the report's
internals didn't provide any reassuring signs about economic ramp
up either. Average hourly earnings, the work week and revisions
to prior months' data were all negative. Even the slide in the
unemployment rate was mostly due to more folks leaving the labor
force. Importantly, while the report failed to throw up any
evidence of improvement in the economy, it wasn't bad enough to
stop the Fed from contemplating the 'Taper'.
The way I see it, stocks appear priced for perfection. Investors
seem to be hoping that everything - from the economy to corporate
earnings and from U.S. interest rates to the international growth
backdrop - will continue breaking out in favor of stocks. It has
played out that way lately, with stock market investors not
losing any sleep over recent the rise in long-term interest
The calculus seems to be that improved economic growth and
stronger corporate earnings will offset higher interest rates.
But what if we don't get the material uptick in the growth
picture, but interest rates keep trending up in anticipation of
monetary policy normalization. Nobody wants to contemplate this
not-so-implausible scenario at this stage.