Seems like the market is going up or down 200pts a day. It is enough to drive anyone crazy…..
Like we have said, in the short term the market trades on emotion and in the longer term it trades on fundamentals. If we use the short term manic depression of it as a buying opportunity, then all we need look at are the fundamentals to get an idea of where it is going.
Note: It will not get to where it is going in an even line. It will be a jagged drift
Let’s look to the Philly Fed and their April manufacturing survey.
Indicators Suggest Continued Growth
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased slightly from 20.2 in April to 21.4 this month. The index has now edged higher for four consecutive months and has remained positive for the ninth consecutive month (see Chart below). Although still positive and suggesting growth, indexes for new orders and shipments showed a mixed pattern this month: The new orders index fell 8 points, while the shipments index increased 10 points. The current inventory index decreased 10 points and fell into negative territory, suggesting declines in inventories. Indexes for unfilled orders and delivery times were both negative this month, suggesting some weakening in activity from April.
Firms’ responses continue to suggest that labor market conditions are improving, but indexes for current employment and work hours fell from their readings in April. For the sixth consecutive month, more firms reported an increase in employment (21 percent) than reported a decline (17 percent). The workweek index declined slightly but has now remained positive for seven consecutive months.
What does it all mean? The fundamentals are improving. They are not surging but rather a slow but steady climb. As long as we see a continued improvement, it means the economy will continue to grow and all the benefits that come along with it (jobs, revenues, profits etc.) will continue to look better.
It may not be spectacular, but it also is not as dire as a 375pt. drop would lead one to believe either..