Stocks quoted in this article:
Horrible business news came out yesterday pre-open. Business Insider had all the grim details:
The November ADP national employment report, an important preview of Friday's jobs report, is out.
Private companies added 215,000 new jobs in during [sic] the month, which was much stronger than the 170,000 expected by economists.
Furthermore, the October number was revised up to 184,000 from an earlier reading of 130,000.
Ouch. It's amazing that futures only ticked down a few handles on that. If this trend continues, and we see growth in employment, the market might crash. But thankfully, tons of people would lose their jobs in a market crash, which would solve our over-employment problem. And, presumably, the market would rally again.
Problem solved! It reminds me of a time in the '90s when small-caps were hot. It seemed like a no-brainer to buy mid-caps. Heads, you win, they go up, and tails, you win, they go down, but now, they're small-caps, and the world at the time LOVED small-caps.
Okay, I kid. I do understand the concept that an improving economy would cause the Federal Reserve to taper its bond purchases. And the presumption by many is that the market only resides at these levels thanks to Fed support. So, once the Fed pulls the plug a bit, the markets will tank.
Is that a safe presumption?
I really don't believe it's so clear. Let's set aside the noisy nature of any jobs report. I mean, it's a heavily calculated and adjusted number to begin with. Beats and misses are best thought of as rounding errors in an economy that employs something like 140 million.
Markets are discounting mechanisms. Or, so they tell us. The potential Fed December Taper has gotten quite a bit of publicity, to say the least. We've lived in fear of a dreaded taper for at least half a year now. Remember back in June, it was pretty much a foregone conclusion that they would taper in September. On some level, this was already discounted in the markets. And on another level, it's very early in the whole growth/interest rate lift cycle.
I don't doubt that the markets will stay a bit nervous into the actual Fed announcement. And who knows, volatility may even pick up a bit. We already have a modest volatility bid up into all this, and I'd expect that to persist until we hear from the Fed.
Famous last words, but I really don't anticipate a gigantic reaction on such a well-publicized and anticipated event.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.