In early Spring, I predicted the market would be weak until Fall. So far, that has been correct. I never thought a double-dip recession was possible, unless the U.S. defaults.
Since then, the all-important level of uncertainty has been dropping. We survived European sovereign debt problems both last Spring and this one. We survived the end of QE2. Is it party time yet?
Yesterday, the Dow was up 202. The futures market is predicting the market will open up about 40 points this morning. Gold is dropping like a rock. Is it party time yet?
Every market strategist will tell you to "buy on the rumor and sell on the news." This means the market will move before the event actually occurs, as you can see the market is already moving up, even though there is no definitive deal on the debt ceiling issue yet. So, is it party time yet?
NO!
First, when the stakes are this high, it is better to be late to the party than to be early to a tragedy. I'll gladly give up some of the upside to sleep better at night.
Second, the level of uncertainty is lower but still high historically. It is pretty clear that the U.S. will not default even if the debt ceiling is not raised, albeit with rioting in the street (which is preferable to default). More importantly, the European sovereign debt crisis could heat up quickly and unexpectedly.
Third, the next critical data-point will be the Jobs Report on August 5th. If the debt ceiling is raised, if some additional step is taken in Europe and if the Jobs Report is improved, it may be time to get more aggressive.
We'll see . . . just remember, there is always a party somewhere in the future!
