A frequent refrain among commentators is that this ongoing growth in the stock market has to ‘come to an end’ at some point because of, well, mostly because it’s been going for a while and that it’s gone entirely too far in the last few years.
Never say the Europeans aren’t cautious. The dollar has been on a roll of late, in part because of the market’s growing expectation for more stimulus from the European Central Bank before long that would include some kind of larger-scale quantitative easing program after a speech last week from Mario Draghi that European markets seem to still be reacting to several days later. Reuters, however, reported that the ECB isn’t quite likely to do move quite so fast (heard this one before) and that took some of the wind out of the dollar’s sails and boosted the euro a bit.
All that’s left for investors now when it comes to earnings season is the shouting, but if the rest of the retailers post results anything like Kate Spade did on Tuesday, the shouts will be screams of terror rather than anything that assuages investors over the state of the overall economy. Kate Spade’s executives went into some detail on its conference call as to the nature of its margins shortfall – which Belus Capital chief equity strategist and longtime retail analyst Brian Sozzi said are not likely to improve until the middle of 2015 – and the company then did itself no favors by declaring that it wouldn’t be discussing the margin issues any further on the call. (Craig Leavitt, the CEO, violated that rule to some degree, but basically, investors don’t like it when you tell them flat-out that you’re not going to talk about your problems, and when you’re a company with a forward price-to-earnings ratio of 77.5 and a price-to-book value of 119, that’s going to be particularly true.)
Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.
There’s nothing dull these days about the bond market, which is exhibiting an unforeseen, profound level of strength that’s spread through the various asset classes on the fixed income side, and that continues to remain unexpected for the most part.
The Federal Reserve faces a relatively easy decision at the end of the day – it is going to continue to reduce its monthly bond buying, this time to $45 billion a month, and truth be told the action in the bond market of late has made things a bit easier for them when it comes to worrying about slack in the economy – long-term rates have not skyrocketed to nowhere as some had thought might happen, so that’s encouraging – mortgage rates are actually down by about 20 basis points on the year (yes, they rose dramatically last year, but they were somewhere in the realm of nothing early in 2013).
An odd jobs report sets the tone for what’s likely to be another choppy day in the markets – stock futures plunged, briefly, after the Labor Department said nonfarm payrolls grew by just 113,000, but the household survey saw a drop (again) in the unemployment rate to 6.6 percent on a big gain in jobs in that survey. An odd decline of 29,000 in government payrolls offset the overall about-at-trend-but-let’s-not-kid-ourselves-about-this-being-awesome 140,000 or so gains in the private jobs market, so there’s a little bit to like, some to shake one’s head at, and still more to wonder about how many people didn’t get to work because their feet froze to the ground when they tried to get into their cars.