Market Bears In Control Due To The Jobs And Housing Data

The latest Employment and Housing data was expected to boost the bullish sentiment as it had done in December. But the case is rather the contrary. The market is still cold to the Employment and Housing data. Another famous indicator was previously shown the cold shoulder by the market. But it was lucky to get a delayed response later. The market has been behaving unusually since July. The stock prices had just encountered a classic head and shoulders pattern yet the market was enjoying a rally. Consequently a correction was predicted and it was reported in fall with a delay. There was ample time to secure the expected decline in equities by making adjustments and modifications to portfolios.

The market is developing same type of delayed re-action to the extremely bullish sentiment since December. Housing and employment are key variables for the year 2011-2012. They experienced an extremely positive boost in the stock market. But after a few weeks they went down and received undeniably bad feedback.

The question looming large is that why should the market express a delayed re-action this to such a largely positive force since December? A premium for the Bernanke is reflected in asset prices and other de facto present choices that are stuck in the money for the time being. Such trends influence investors to take tremendous risks. The outcome of the whole matter is the expected returns gradually dwindle in the bid. The movement in commodity prices proves the fact. The market almost seems to be dominated by beastlike spirits. Investors and traders are paying zero attention to data. The market is haunted by bad news for the last two years but the market has learnt to ignore them altogether. The market was populated by signs that it will soon be hit by a short-term top. But none paid any attention to that. The valuations are expected to be modified by sometime in the next month or two. It resembles the same delayed reaction that the market experiences after the July head and shoulder pattern.

 Business-people and bankers have at last acknowledged that the Government policies are important for economic growth. They expressed this outlook regarding Fed’s current investments in the market. They said that the financial policies of the Government are necessary to stabilize and strengthen economic growth. However large number of regional and community bankers continues to show their lack of faith in the Government policies.

It will sweep us off our feet when we take notice of the fact that what the market has achieved this far mostly amounts to merely substituting- government guarantees, a massive transfer of bad paper from private to public balance sheets, ongoing zero real interest rates for the leverage infused into the financial system in the previous decade. The various guarantees and Quantitative Easing programs are nothing but leverage substitutes. No practical US taxpayer will buy the whole thing. The US economy and the financial system are not ready to venture in its own. It is still in need of external support.