Daily Insight

U.S. stocks ran into some trouble yesterday following the latest consumer confidence report. The market started the session off about flat but once that confidence reading came out and spurred concerns that the global recovery will be lackluster things kind of fell apart.

Market sentiment appears to be increasingly mercurial. We have these weeks in which the market believes the recovery is going to be normal, both in terms of degree and duration, followed by stints of concern.

The former mentality, in my view, is one that’s distorted by ultra-easy monetary policy and unprecedented levels of global government stimuli. A recent viewing of the 1980s classic (ok, maybe not a classic) “Back to School” reminded me of a Dylan Thomas poem, and indeed the equity market doesn’t want to go gently into that good night, but rages against the dying of the light...I paraphrase. Yet we must acknowledge that debt-driven recessions don’t simply fizzle out as the aftermath drags on – its takes time for the de-leveraging process to play out.

Further, the severity of these types of contractions occurs so quickly that the government response is over-bearing and carries with it additional problems, particularly by delaying the inevitable and the misallocation of resources that result – adverse implications follow and they show up in a lack of business confidence and employment.

These are the realities with which the market is currently entangled, mistakenly euphoric by the distortive actions of government only to be occasional reminded by realities on the ground. We need end consumer demand to take over from the inventory cycle and government stimulus, yet this confidence reading was a stark reminder that we’re really nowhere near this scenario.

Troubles in Europe isn’t helping matters as those economies appear to be losing steam. The German economy unexpectedly stalled in the previous quarter and that is weighing on the entire euro-zone, not to mention their sovereign debt issues.

All 10 major industry groups declined on the session, led by financials (yesterday’s best performer), basic material and energy shares.
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Brent Vondera, Senior Analyst