This Analysis Could Be the Difference Between Outperformance and Underpeformance.

“Bad” is Not “Good” Anymore.

Again, all this economic data coming with week is important because the world’s central banks are very, very data-dependent with regard to policy.  As the data goes, so will go markets.  But, and this is important: We are not in a “bad news is good for stocks” environment, especially here in the U.S.  Previously, markets have rallied because bad economic news meant more QE, which had been good for stock prices.  That is no longer true.  The market doesn’t want more stimulus and QE.  (That statement can be made globally, but it’s especially true here in the U.S.)  It is time for the domestic and global economy to turn for the better and for growth to re-engage.  That is the key to sustainably higher equity prices, and that’s why the data is important.

Despite the media reports, one thing that was not the reason for the strength in stocks yesterday was the weak ISM manufacturing PMI.  Again, bad economic news is not good for the market (as it has occasionally been in the past).  More QE isn’t the answer to a sustained rally from here—good economic growth is.  So, bad economic data this week is not good, regardless of the short term market reaction.

That said, the weak economic data yesterday was somewhat dismissed, but that’s mainly because of the looming jobs report Friday, which is far and away the “most important” economic report from a WWFD standpoint (What Will the Fed Do).

Bottom line is nothing much changed yesterday despite continued volatility.  This market remains very resilient and certainly isn’t going to go straight down, and yesterday’s rally is consistent with the choppy trading we’ve seen lately.

To me one of the biggest things that continues to stick out to me is the unwillingness of money managers to at least partially lock in 14% year to date returns on the third day of June, because everyone is so “sure” the market will eventually march higher, and as a result are happy to stay long through any correction.  I continue to think that selectively booking some profits at these levels, while staying broadly long, makes sense from a common sense and contrarian standpoint.