When In Doubt, Rally

In yet another case of the equity market’s recent mantra of “bad news is good news”, the major indexes are climbing this morning after disappointing consumer income and spending numbers this morning.  For September, consumer incomes were estimated to have declined 0.1% while spending growth slowed to 0.2%.  Both numbers were below market expectations and yet another sign of a domestic economy that is struggling to restart growth.  But, true to recent form, this weakness appears to be viewed as another point of assurance for the announcement of some sort of Federal Reserve intervention this week and, therefore, is reason enough to push share prices higher.  To me, this feels like a last gasp effort to goad equities higher ahead of the FOMC’s announcement on Wednesday, especially since gold is trading largely unchanged this morning and Treasuries are seeing solid bids.

With so much of market’s price direction hinging upon data/announcement we are going to receive this week, prices will be volatile.  As such, keep an eye on the inter-market relationships for some sense of how things are likely to trend.  For my part, I’ll be watching gold and the U.S. Dollar Index closely to see if their inverse correlation continues to hold.  Also, the performance of the long end of the Treasury curve will go a long way towards telling us whether or not the inflationary concerns of late are justified and if “risk on” assets can continue their rally.  Thankfully, though, the imminent release of so much of the data the market’s have been anticipating should get things back on a more fundamentally-based trading environment.  Whether or not economics to earnings will win out, though, remains to be seen.

Until later…..