3 things to watch:
1. Jobless claims up again
2. Retail sales slump
3. Is QE3 preparations underway
Well it’s the same old story…we get one step up on some good news only to beaten back two. The jobless numbers clearly show that much of the pre-holiday hiring was just temporary, most likely from delivery drivers bringing Christmas goodies from Amazon to all the boys and girls around the world. The disappointing retail sales increase on .1% simply confirms that there is no true consumer demand in the economy and that Americans just like to buy things for the holidays.
Either way you look at it, the economy is likely to slow in the coming months as the effects of QE2 start to wear off. The slowdown along with the waning of inflation will give Bernanke and the Fed a license to institute QE3. In fact, it is this hope that the market has been hanging it’s hat on, as without it we will continue to slog through the mud.
Market Update: Short term, the market has had a good beginning to its happy ending, but looks overbought here. Many fund managers ended the year with a lot of cash and are playing catch up. A pullback could end that buying spree. Look for flat to sown market until we get some positive earnings surprises…in either direction. If earnings come in worse than expected in general, this rally is over barring a QE3 of course.
Regards -Keith Springer