ISM Non-Manufacturing Negates Recent Economic Optimism; Bad Economic News Is Good For Stocks
The ISM Non-Manufacturing index was released today and reversed the presumably good data contained in the ISM manufacturing index from two days ago. How the economy can look good one day and worse two days later, only the administration knows. Of note was the actual NMI number which came in at 50.6, a decline of -0.3 from September, and lower than the 51.5 consensus estimate. More troubling is that the Fed members, which many had expected to focus on the positive news released previously, will now be back to their schizophrenic, QE and stimulus-happy selves.
Also notable was the accelerating weakness in employment (41.1 vs 44.3 prior), inventories (43 vs 47.5) and increasing prices (53 vs 48.8). So as even more inventory destocking continues, prices continue grinding higher squeezing margins. Ignoring the employment number (which is a lagging indicator, and will continue lagging well into 2012), there is nothing positive that was disclosed in this report. Yet the market shot higher. Why? Because the need for a second stimulus and continued Fed softness is now back to crisis levels. So as the economy continues collapsing, the ponzi construct that is the market continues melting up. Welcome to the lunacy of Wall Street.
Of course, this can just be a headfake to the Fed's action today, which is presumed to have seen this data in advance. Keep a close eye out on