Comparative analysis and its impact on the market

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The news has certainly shifted away from standard analysis to a unique form of comparative analysis. It seems as though the markets are growing accustomed to falling weaker, and a comparative analysis trend is the only thing keeping prices afloat.

Job data correlation

When job data was released just this month, the result in the market was positive, even after a loss of 60,000 some jobs in the US. With this type of data, it would normally be expected that the market would go to the negative, but in fact, job cuts of just 60,000 were treated like good news. The market had expected 90,000 job losses and was happy with a loss of just 60,000 – 30,000 short of what it expected.

We’ve entered a trading world where nothing is standard. Some days it seems like no amount of bad news will ever push the market downward, while others seem like nothing can go to the positive. After months of hearing the word recession, investors are starting to buy on any hint of good news. Job losses, though not positive, were lower than anticipated, and thus, a good reason to take a position – at least in the mindset for the majority of traders.

Overall outlook stays the same

It is important to remember that while the day to day conditions change, the overall outlook remains the same. 60,000 job losses are still cuts, even if the market does perform well on the day of the announcement. The long term status is still the same; the US economy is shrinking by production and jobs and is prone to a minor correction.

Election year economic politics certainly play a role in the market as well. Every side is looking to claim victory in turning the economy around, whether it is eliminating the gas tax or sponsoring the economic stimulus package. Election year politics are some of the dirtiest around; we cannot put it past our elected officials to not have themselves in mind with each vote.

If, as a market, we continue in the direction of more comparative analysis, this particular downturn will not last as long as we have all expected. The fact that investors remain optimistic for the future, and are seemingly willing to put their money where their mouth is, gives tribute to what investors really think.

Corporate earnings should improve

Corporate earnings are most likely to benefit from comparative analysis when the first and second quarter earnings are compared to post-stimulus package earnings. With $150 billion trying to find a home, corporate earnings should be near their peaks this summer. The market is preparing for a short, earnings-led recovery followed by an inflation fearing sell off. If the Fed actions and stimulus package work as planned, Q3-Q4 should prove to be very profitable times. The markets still have a bit to drop, but the stimulus cushion will certainly help soften the blow.

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