Here We Go Again?
Stocks closed back above 2100 for the first time since November 4th. We all welcome the surge higher, but it does seem odd to occur right after the ISM Manufacturing report went into contraction territory at 48.6.
So why didn't stocks go down on this bad news?
It all comes back to the odds of a Fed rate hike. Meaning that the weaker the economic news, the less likely the Fed will raise rates, which lowers bond rates, which makes stocks more attractive by comparison.
However, I believe that is completely missing the point. Truly folks should be more concerned about what this means for the outlook on the economy. For example, what if I told you that 9 of the last 11 recessions were preceded by ISM Manufacturing readings below 51?
Yes, you would be a touch more cautious in your investing approach...which is why I thought best to take some chips off the table Tuesday.
My move to 65% long is not very defensive in the grand scheme of things. However, it just seems wiser than being gung ho 100% long in the face of this poor economic news. From this new posture it is quite easy to get more or less long as the next round of fundamental data dictates.
Best,
