Analysis on the Current State of Markets

The past two days in the stock market have been marked by volatility and uneasiness. The VIX is up 16% as I write this and the Dow is down more than 200 points. For those of you who have followed some of my previous posts, I often comment on the jobless claims number. Today, the number came in at 482k, easily surpassing the upper end of the consensus range and pointing to a halt in the improvement in the labor market. In fact, this was the first week (out of the past 19) that the 4-week moving average did not fall.

Earnings have been better than expected across the board, with some uneasiness about the mortgage/credit loan losses that the banks reported. Later tonight I'll have an analysis of Obama's proposal for the banks and limiting risk.

Despite the market sell-off it is IMPERATIVE to continue following the trend in earnings and economic data. This is the best way to gauge the future direction of the market and the health of the economy. No matter what direction the psychological participants push the market, the ultimate, long-run determinant is influenced the most by economic and earnings data. So far, this data has been largely positive, with the exception of today's higher jobless claims numbers and the sticky unemployment rate above 10%.

I'll be following every bit of economic data that's released in the following weeks to determine whether this recent sell-off is representative of a change in the trend of of the economy. My instinct and expectation is that the market is currently pricing in negative economic news that has yet to come. Further, there is no doubt the market is digesting Obama's proposal for banks and is pulling-back after a near 65% recovery from market lows. Below is the jobless claims chart from econoday.