Market On Open, Tuesday 9 September

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The Market Isn’t The Economy, Episode 204

by Alex King, CEO, Cestrian Capital Research, Inc

This morning, the BLS announced a significantly negative revision to prior jobs numbers. Which must mean the economy is significantly weaker than everyone thought it was yesterday. But an hour or so after the print, the market is essentially flat (S&P500 down 0.2% at the time of writing).

What does this tell us? It tells us once again that the price of stocks is only loosely correlated to the real economy. In the limit, the market and the economy do move in lockstep, but really only in the limit. If GDP was soaring, jobs mooning, unemployment cratering and inflation under control, so no rate hikes on the horizon, then of course stocks would be going up. And if GDP was plummenting, jobs evaporating, unemployment rising fast and inflation wildly out of control hinting at rate rises to come, then of course stocks would go down. But outside these limit cases - which is to say about 90-95% of the time - the dynamic driving risk asset prices is different to the dynamic driving the real economy.

Risk asset prices seem to me to be determined primarily by:

• The cost of capital used to buy stocks
• The availability of capital to buy stocks (margin loans, spare cash etc)
• Sentiment amongst rich people

And right now, the cost of capital is falling, the availability of capital rising, and since rich people aren’t affected by any of the gremlins in the real economy right now, sentiment amongst them is positive. Hence stocks up.

Let’s now take a detailed look at where markets stand heading into this week. This note is published each and every trading day. We cover equities, bonds, oil, crypto, volatility and much more. Want to get this direct to your inbox each day before the market opens? Join the Cestrian Inner Circle service. You can read all about it here.

Here’s a recent comment by one of our subscribers:

"A Great Fan Of This Service".

I have become a great fan of Cestrian’s investment research service in a relatively short (less than a year) space of time. Alex King, who leads the team, comments by email everyday giving his views on the current state of US markets i.e. Dow Jones, S&P, Nasdaq and Russell 2000. The direction of the indices is forecast dependent, it seems, mainly on Cestrian’s interpretation of the respective charts using, amongst other tools, the Fibonacci wave theory. I have on occasion doubted their market direction conclusions but, I have to say, they have each time been proved correct. Cestrian also provides intensive fundamental research on companies in their US company universe and I have benefitted here from following a number of their selections. It is a personal service and Alex welcomes subscribers’ questions.

I have in the past subscribed to other US based investment services but not only were they much more expensive but also didn’t begin to compare in success terms.

I think what I like most about Cestrian is that, through their chart expertise, they will also call the big moves i.e. markets moving overall from a bullish to a bearish stance and vice versa. In other words a statement to consider becoming net short would, in the event of markets changing to a downward trend, be forthcoming.

I worked as a private client investment manager for over 40 years but have learned a considerable amount, predominantly using charts, since joining Alex a few months ago. Cestrian comes highly recommended.

Anyway, let’s get to work.