Monday Morning Market Notes – Mapping The Week Ahead

Not much reaction to China’s rate cut on Friday:  

Up 0.5% after a surprise rate cut on Friday when we’re still 35% off the highs is NOT what you want to see in an “improving market” – especially one that is “growing at a 6.9% annual pace.”  Oh sorry – I had to take a break to fall off my chair laughing…  That’s right – there are STILL people out there who believe China’s GDP numbers are real.  Personally, I’m bored discussing them so let’s leave them to their delusions and take advantage of our chance to short China’s ETF (FXI) as it retests $40.

Our own markets have been much more exciting anyway, with the S&P blasting up 200 points (10.6%) in just 4 days last week.  This is, of course, perfectly normal in an $18.5Tn index.  After all, according to the Money Flow index, a whole net $73Bn flowed into the S&P last week, so doesn’t it make perfect sense for the index to gain $1,800Bn in value?  

ALL it’s going to take is another 24 weeks like that and the flow of money in will catch up to the implied gain in value – that should be no problem, right?  I know I have at least $10Bn laying around somewhere to throw into the pot, chasing after all these overpriced stocks – how about you?

As I noted on Friday, Google (GOOG), Microsoft (MSFT) and Amazon (AMZN) alone added $100Bn (5%) of the S&P’s market cap gains and the rest was pretty much other stocks following their lead.  As you can see from the performance chart, Healthcare and Basic Materials got left behind but it was a huge week for Industrials and Technology and even Consumer Goods, Financials and Services joined the party.  

As nicely summed up by Dave Fry:

The ECB is rumored, due to little bond supply to buy stocks with their QE program. Doing so would copy Japan’s BOJ who make no secret of buying stocks to support markets. Now China’s PBOC and acknowledging a weak economy, cut interest rates. And, after outlawing shorting, and even conventional selling, now markets are no legitimate two-way trading affair.    

It doesn’t matter that an overwhelming majority of pundits claim the U.S. central bank dare not raise interest rates. They’ve been saying they will do so, and do so this year. Isn’t their credibility is at stake?

Bottom line, central banks are in charge and want markets higher period.

This week many market sectors have heeded central bank’s not so subtle mandates leading to almost panic buying for stocks. Many sectors have moved into green for the year.

It’s been quite a spectacle as overall earnings and ongoing economic data have been weak and are cast aside.

As I and many others have asserted, the stock market is not the economy and this has never been truer than now.