Jobs, interest rates, earnings and the markets

As the week comes to a close there is plenty to ponder. It is important to note we remain in a trading range and the rally that took place last week has been replaced with selling this week. Thus, the trading range we have been in since March continues. I would love to give you some profound input on where this is all going, and which side will win the current tug-o-war for direction, but my crystal ball is a little clouded at the moment. In fact, anyone who claims to know what is going to happen must have insider information or they are a savant. Based on the debate Thursday night no one really has a clue. I do know if you ask good questions you will get better answers. Needless to say those asking didn’t really want to know about how to make America better going forward, they just wanted to keep harping on the past mistakes… at least they were mistakes from their views.

Speaking of mistakes… attempting to predict where this market is going could be a giant one currently. The jobs report today was okay with 215,000 jobs added. The challenge with the report comes from the speculation that the pendulum just swung back towards the Fed hiking rates in September. This has been the debate of choice for the swings in the market direction. If the consensus believes the data is saying not hike… markets rally. If the consensus believes the data is saying rate hike… markets sell off. Until the Fed actually takes action this debate will continue and the up and downs of the market will follow the story line. Take it for what it is… speculation.

Interest rates are swinging up and down in unison with the Fed debate discussed above on interest rate hikes. Bonds have rallied on the belief the Fed will not hike rates at the next meeting in September. However, if stocks sell off as a result of the belief the Fed will hike rates… bonds have rallied as a safe haven for money. Bonds have been in an interesting spot near term as they have benefited from either side of the argument to some degree. That will not last once the decision is made by the Fed. Keep in mind the rally will be temporary if the Fed focuses on pushing rates higher in the come months. Reality is always the winner in direction.

Earnings continue to be a mixed bag as it pertains to the future outlook. Companies that deliver are accelerating, companies that are not adjusting are losing ground. The strong dollar is being blamed relative to the overseas weakness. That may in fact have some impact on growth of US companies, but the global economy is bad. China, Brazil, Australia, emerging markets, etc. Slowing to no growth is the norm. US companies are hit more by the state of the economic picture than the stronger dollar. I have discussed for the last seven quarters that top line revenues have been flat and in some situation declining. Stock buybacks, M&A activity and downsizing is what has kept the earnings numbers looking positive. But, without revenue growth the bottom line has a hard time keeping up with expectations. This is one area where my beliefs continue to be extremely cautious about the future. I am not convinced this changes much going forward.

The bottom line for me is to be patient. To keep filtering through the data. To continue looking at where money is going. To keep collecting all the clues I can from the data presented. When it all adds up to a belief I will track it based on a defined strategy and implement it accordingly. I do not believe in chasing stocks or ideas, I do not believe my opinion matters to the market. I do believe in the trend according the charts. I do believe that a disciplined strategy will keep me from losing my money. I believe in what I know to be true… one day at a time with good habits, good strategies and disciplined execution it will all work out according to plan.

Have a great weekend.