Dow futures ran red this morning and for a moment it looked like the bears might actually have something to growl about. National giants Home Depot and Wal-Mart both managed to disappoint the Street, sending futures lower.
But as red as those futures became on dismal news from the bellwether retailers, a lower open just wasn’t in the cards. Instead, the bears were sent even deeper into the woods.
Positive inflation data once again sent the bulls running as the Dow jumped out of the box to post new record highs. In intraday trading the index crossed the 13,400 mark for the first time ever.
Relatively tame Consumer Price Index (CPI) figures helped to spur the sudden turn of events, proving once again that when it comes to these markets, there is no single mechanism more important the Fed.
Any bit of data that seems to rule out the possibility of a rate hike only manages to propel the overall markets higher–no matter what the outlying macro news is.
I mean think about it for a moment.
The dollar is plummeting, the housing market is crashing, and the GDP is within a whisper of falling into a recession. And on top that, there is the real possibility that gas is headed to $4.00 a gallon shortly. We’re even at war.
But do the markets seem to notice?
Well, not really and even if they do, it’s not for long. They’re entirely tuned in to the Fed.
That’s why, despite the news that seems to shout otherwise, the bulls continue to have their way with these markets, especially as the possibility of future rate hikes are taken off of the board. But all of this is nothing really new.
It began ten months ago in July when the Fed finally signaled to the markets that its 18-month long regime of rate hiking had come to an end. The Dow stood at 10,800 at the time. Since then it’s up nearly 25%.
That single event created the conditions that allowed for the subsequent growth in earnings and the uptrend in the markets that has taken hold.
In fact, today’s CPI data and the disappointing news earlier in the day only gave more credence to what the bulls have been calling for all along–a rate cut. That, of course, would send the markets considerably higher, well beyond the current levels that now have so many bears complaining about nose bleeds.
But even in the absence of a rate cut the markets will still head higher, because a neutral environment, simply because it is not hike, is also very good for stocks. That means that the overall markets could easily add 10% or more a year for the foreseeable future.
That’s why all of the talk lately about Dow 15,000 and beyond is perfectly rational, even given a whole set of conditions that would seem to suggest something altogether different.
So as we head deeper into the summer, rate cuts–both real and imagined–will be the story that continues to drive these markets higher in an environment of little growth and weakening inflationary pressures.
The markets are just warming up.
By the way . . . United Industrial Corp. (UIC: NYSE), a company that we covered last month in a story on military drones, is headed higher.
Strong earnings growth and the announcement of a massive share buyback by the company have helped to send its share price skyward.
Since our story ran the company is up nearly 16%.
Wishing you happiness, health, and wealth,
Steve Christ, Editor