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  • STOCKS HITTING RESISTANCE - By WSS Research Desk 0 comments
    Oct 31, 2013 2:16 PM

    By Carlos Guillen

    Stocks are trading fairly flat during today's trading session, as investors continue to digest the Fed's decision to maintain course on its monetary policy trajectory. Ironically a very good Chicago PMI result has done little to lift markets today, and initial claims landed worse than expected for the third consecutive week.

    A bit encouraging today were the beginnings of a down trend in the number of people filing for unemployment benefits; however, expectations were for a sharper drop. According to the Department of Labor, initial claims during the week ended October 26 totaled 340,000, decreasing from the 350,000 revised figure reported for the prior week and landing above the Street's estimate of 335,000 and representing a solid break below the 350,000 level that economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month. However, the initial claims' four-week moving average was 356,250, increasing from the prior week's average of 348,250. While the prior three weeks the initial claims data had been affected by rather inaccurate data from Californian, it now appears that this is no longer a source of distortion.

    (click to enlarge)

    On a very positive note, economic data from Chicago PMI spiked in October to 65.9 from the 55.7 reported in the prior month. The result was better than Economists' forecast of 55.0 and continued to indicate that the Chicago area was still in expansion mode. Also encouraging was that after the employment gauge fell for the third straight month as of September, this month the employment index rose to 57.7 from 53.2. And, new orders rose to 74.3 from 58.9, the highest level for this year; more on this below.

    As we saw yesterday, the Fed has decided to leave their $85 billion-per-month bond-buying program intact, as it conveyed that it is waiting for further evidence that the economy is advancing on a steady course before altering its stimulus effort. Perhaps that is the reason why markets are not trading higher today on very good Chicago PMI numbers; that is, the better the economy, the higher the odds of Fed tapering, and of course the higher the pressure on stocks. That pressure is preventing the Dow from breaking above resistance at the 15,700 level.

    Awesome Chicago PMI Sinks Markets
    By David Urani

    While usually not particularly a market moving indicator, the Chicago PMI was significant in that it was an enormous beat. The index for Chicago manufacturing activity was up from 55.7 in September all the way to 65.9 for October, marking the highest reading in more than two and a half years. Included in that was the best reading for new orders since 2004 along with backlog and production at two and a half year highs. Employment did lag the rest of the data at a 57.7 reading but was still up 4 points.
    But interestingly the Chicago PMI failed to spark the market. In fact, it dove South on the release (see S&P 500 below; Chicago PMI was released at 9:45am).

    (click to enlarge)

    That coincided with drops in Treasury bonds and gold, and those are symptoms indicative of expectations for the Federal Reserve to slow down QE.

    (click to enlarge)

    (click to enlarge)

    Once again it's the stupid backwards market that's addicted to the Federal Reserve and sees good news as bad, and bad news as good. And this is exactly why the Fed needs to stop. You could argue from the beginning that the Fed shouldn't even exist but in past years at least there was a purpose there for the Fed to keep asset prices afloat when times were tough. Having that Fed backstop helped to ease the pain of the poor economy. But with the economy having been on the mends for a few years now and the stock market at record highs there's no need for this; at the very least we should have wound down some of the $85 billion of monthly funds from the Fed rather than continuing pedal-to-the-metal. The Fed needs to begin tightening now so that we can return to a financial market that makes sense, where good news is good.

    The Fed exists to lend stability, but while there's so much focus on downside risk I suggest there's also such thing as instability to the upside. We're currently looking at a stock market at all-time highs, while at the same time receiving unprecedented amounts of Federal Reserve stimulus. That's a recipe for bubbles if I've ever seen one and I implore them to stop, even if Wall Street gets bummed out for a while and the market pulls back temporarily as a result. It's better for the long run.

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