Last Friday, the big economic news was the shocking loss of 533,000 jobs which spurred President Bush to accept this weekend a bailout plan for the automobile industry likely to be announced in the week ahead. So did stocks crash on Friday as a result of the bad jobs news? No -- the Dow rose 259 points. And despite the daily failure of the stock market to fit the simple storyline that stocks go down with bad news and up with good, this media mental model persists.
In the week ahead, there is likely to be more bad news. Here are three such items:
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Spiking unemployment filings. On Thursday, first time unemployment filings are likely to top 500,000 for the fourth straight week.
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Slumping retail sales. On Friday, retail sales are likely to decline for the fifth month in a row -- the longest such streak since the numbers were first collected.
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Non-forecasting companies. A few companies are expected to report their results and claim that they lack visibility -- code for the future looks dark and they don't want to speculate publicly about just how dark.
So what will the market do this week? I have absolutely no idea. But it would not surprise me if it rose and fell wildly for no apparent reason.
One reason the market could rise is that investors could be encouraged that President-elect Obama is talking realistically -- about how much worse the economy is likely to get and what he plans to do about it. Another reason stocks might go up is that there's a good chance that Washington will announce a plan to put billions into the automobile industry to keep it out of bankruptcy until at least March 2009.
Of course even if both of these things happen, stocks could move in the opposite way that people expect. For instance, if stocks fall, the media could report that investors were disappointed that Obama did not offer a big, detailed stimulus plan. Or the media could report that investors were upset that the auto bailout plan was too small.
One thing I am sure of: the media will not report the real reason for stock price movements -- the specifics of the trades of big investors and the underlying reasons for those trades.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
12-07-2008 @ 11:43AM
Pacio said...
I think more bad news are to come unfortunately given that the main US banks will report their Q4 earnings over the next weeks...
Pacio - http://www.ibankee.com