Market Sentiment is like Love (new import/export data)

[Kurt_and_Hunter]

When you're in love it's a beauty mark. Fall out of love and it's a mole.

Every day an economic narrative is written based on the almost religious belief that the market is a perfect calculating engine, risk discounter and oracle. Since the market is always right the day's news is interpreted through the lens of whatever the market happens to be doing. (The market is indeed very clever but, like most famous oracles, often gives maddeningly inscrutable answers.)

Case in point: It was reported early this morning on MSNBC/CNBC: "Stocks set to rise because of the report that our trade deficit is way down."

We are a net importer so if every American keeled over dead the trade deficit would improve by $22 billion/month. (Imports and exports would both be zero, so no deficit.)

What really happened is that US consumer activity is way down. Imports are down 50% since July. That is not in itself a reassuring statistic but does make the trade deficit smaller.

So the market opens and goes a little bit negative. MSNBC/CNBC keeps reporting the story on the hour, but this time it is neutral to negative: "US trade deficit down due to lower consumer activity."

If the market tanks later today the story will change to: "Stocks sold off today on reports of weak US consumer activity."

And the truth? The market probably doesn't care about the report one way or another because it merely confirms what everyone already knew and wasn't a big surprise.

But we want an explanation of why the market does what it does so stock moves are always attributed to something. (If stocks dip it is called "profit-taking"... when they go up, however, it is never called "profit-giving." Hmmm...)

Here's a chart of the new data:

http://www.calculatedriskblog.com/2009/03/us-trade-exports-and-imports-decline.html