There’s one thing everyone should know about the stock market: the stock market is not the economy. At least it’s not reflective of the economy in the short-run.
Raymond James’ Jeff Saut addresses it in his weekly market commentary:
Third quarter earnings season kicks off this Thursday with Alcoa’s 3Q12 report. Plainly, for the rally to stay intact earnings cannot disappoint. And despite my sense that CEOs have stepped to the sideline on any spending until the November election and a resolution on the fiscal cliff, last week’s economic reports were good. Both PMIs were better than expected, vehicle sales jumped to 14.9 million units, refinance applications surged by 47%, and Friday’s employment report implies Industrial Production will probably look good on the next release. Therefore, despite this morning negative earnings story in The Wall Street Journal, I think the upcoming earnings reports will not disappoint. This morning, however, such worries, combined with Iran hostilities, the Syria/Turkey situation, a slowing economy, the presidential election, the fiscal cliff, and talk of a double-top in the SPX, are all coming together, leaving the pre-opening futures off 7 points. What the bears fail to realise, however, is that in the short-run there is not a linear relationship between the fundamentals and stock prices. Near-term support exists at 1450 – 1455. Major support resides at 1400 – 1422. With a full load of internal energy I think any pullback will be contained by one of those support zones.
Stocks are all about expectations. If markets already know about bad news, then markets will price them in.