Some Great Reward: Dow Gains, Hits New High as Market Embraces Bad News

Stocks headed higher this week despite dismal data, and a delayed launch of a North Korean missile. Who ever said the markets were efficient?

The S&P 500 rose 1.58%% this week after today, while the Dow Jones Industrial Average gained 2.16% to this week after. The Nasdaq Composite advanced 1.39% this week after today.

The market shouldn’t have gone up today. Industrial production was miserable, and retail sales were even worse. While we can blame the former on the hurricanes, their really is not excuse for the latter. Gluskin Sheff’s David Rosenberg laughs at those who see economic growth picking up:

Today’s dismal retail sales number for August came as a bit of a shock to the rose-colored economics community, but not to the markets seeing as the day prior to the report, the consumer discretionary sector sagged 0.5% and was by far the worst performer on the S&P 500 board. Retail sales fell 0.2% last month and July was revised down to 0.3% from the initial reading of 0.6%, and this was a month that should have seen a lift from the array of state tax holidays and the alleged pre-hurricane buying activity that the growth bulls had bandied about. Then again, what does one expect when work-based income shrank 0.2% in nominal terms and by 0.6% in real terms? And to think that everyone all of a sudden puts ‘inflation is back’ on the front pages of the print media because of one quirky CPI report. Go figure.

Wellington Shields’ Frank Gretz says “the real good news was that there was none.” He explains why:

Sell on the news … to coin a phrase. At least Apple (AAPL) is following the historical script—buy into a product launch and then take profits. The market, by contrast, made a new high on Monday, a historical rarity in September. There was the good news over the weekend that only 75% of Florida was without power and Korea didn’t nuke anyone. The real good news was that there was none, and the market went up because it wanted to go up. It’s certainly good news in technical terms that Monday’s rally to a new S&P high was the best in three months—1% rallies have been a rarity this year. Now for the bad news. This sort of “breakout” has been good in the medium term, but no big follow-through short term. A recent example would be this past March, where after a breakout, the S&P drifted lower for the next six weeks. History says no big risk, but no big reward. Then, too, it’s just history.

And those who ignore history are doomed to repeat. Or something like that.

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