Young Research & Publishing Inc.

Investment Research Since 1978

  • Breaking News
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • The Final Richard C. Young’s Intelligence Report
  • Home
  • About Us
    • Contributors
    • Archives
  • Investing Analysis
    • Bonds
    • Commodities
    • Currencies and Gold
    • Dividend Investing
    • Economy
    • ETFs & Funds
    • Investment Strategy
    • Real Estate
    • Retirement Investing
    • Stocks
    • Taxes
  • Money Management
  • Crisis at Vanguard
  • Free Email Signup
  • Retirement CompoundersSM
  • Dynamic MaximizersSM
  • Facebook

Good is Good but Bad is Better

September 7, 2012 By Young Research

Lately the market has been reacting to economic data releases with the outlook that good is good, but bad is better. Bad news has been rewarded by investors pushing the market to its highest valuations since before the recent recession. This reaction is predicated on the hints of future monetary stimulus from Federal Reserve officials, and new measures recently outlined by the ECB.

This week generated much negative economic data, including a major fall in the manufacturing employment diffusion index from the BLS. The index fell to 36.4, signaling that the majority of manufacturing companies are decreasing employment. You can see in the chart below that nearly every time the index has fallen so low, the economy has tipped into recession. Manufacturing employment is a leading indicator of total employment. If manufacturers are cutting jobs, it could signal future harm to the broader labor market.

Another signal of slowing economic momentum is the relationship between new orders for manufactured goods and inventories of those goods as measured by the ISM Manufacturing Report on Business. You can see this relationship on the chart below. The chart falls when growth in inventories outpaces growth in new orders. When manufacturers build up excess inventories for which there is little demand, manufacturers are likely to cut back on new production until inventories are balanced.

Weekly initial claims for jobless benefits remain above 350,000, signaling no imminent rebound in employment, and non-farm payrolls grew by an anemic 96,000 in August. That’s not enough new jobs to keep up with new entrants into the workforce. In the face of building  evidence that an economic contraction is on the horizon, the value of the S&P 500 index increased by over 2% yesterday, and is up again today.

 

What is driving the market toward ever higher valuations? Yesterday, it was pronouncements of an unlimited bond buying program by the ECB and today the dismal employment report seems to have cemented Wall Street’s expectation that the FOMC will announce more stimulus next week. To sum up using Wall Street’s stimulus-driven logic, a good economy is good for stocks, but a bad economy is better.

Related Posts

Our Most Popular Posts

  • Vanguard GNMA and Your Retirement Years
  • Yes, Vanguard is too Big: Part II
  • This Chart Has a Concerning Look
  • Wellington Management Company
  • War Tensions Driving up LNG Prices
  • Facebook: “A Giant Blood-Engorged Tick Hanging off Your Frontal Lobe”
  • Your Pre-Retirement Years: A Straightforward Way to Earn Over 9% with Vanguard Wellesley
  • Amazon Establishes Foothold in Big Box Retail with Best Buy Partnership
  • Red Alert! $164 Trillion in Global Borrowing Exceeds Pre-Financial Crisis
  • Meet a Long-Time Friend and Advisor: The Stissing, Mountain Man
Fidelity: #1 Online Broker

The Economy Hasn’t Done this in Over a Decade

Household Net Worth Hits a Record High: Is that a Good Thing?

Is the GOP Tax Plan as bad as You’ve Heard?

Warehousing Employments Soars to Support E-Commerce Explosion

How Expensive is the Stock Market?

Search Young Research

RSS The Latest at Richardcyoung.com

  • Thomas Jefferson: Radical and Mischievous?
  • How Barbara Bush Brought Down the House at Wellesley College
  • Your Retirement: The Van Life
  • Viktor Orban: No Immigrant Invasion for Hungary!
  • Senate Must Not Confirm Anti-Iran-Deal Pompeo
  • One Standard for the Public, Another for the FBI?
  • O Canada: “Sports Bind Us Together in our Pain and Heartache”
  • Syria’s Four Fronts and a Perfect Storm of Chaos
  • How Would You Evacuate? Could You?
  • Cato’s Justin Logan—Iran Nuclear Deal an Historic Achievement

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Social Media

  • Facebook
  • Twitter
  • Youtube
  • Pinterest

Copyright © 2018 | Terms & Conditions