Tax Cut’s Market Impact
Only an average of one in six economists forecast that the Conference
Board’s consumer confidence index would decline. And those predicting a drop
didn’t think it would drop by as much as it did.
How did they get it so wrong?
The Bush tax cut had a lot to do with it. Forecasters thought that
rebated checks arriving in mailboxes earlier this summer would cushion
consumers’ pocketbooks, make them feel more confident about their economic
situation, and therefore, more willing to spend.
But neither the tax cut, a slower pace of joblessness, nor slightly lower
prices at the pump last month helped as the Conference Board’s consumer
confidence index dipped to its lowest level in four months
Volume surged in financial futures in the minutes following the release
of the report. Debt futures surged while stock index futures cascaded as
market players foresaw one of the few factors underpinning a collapsing economy and equity markets —
the optimistic, spending consumer — slip away. Consumer spending accounts for about two-thirds of gross domestic product
and consumer confidence is a leading indicator of spending future spending
patterns.. Tomorrow
the government will release the final revision of Q2 GDP figures and many
economists are forecasting a drop to zero growth from the previous revision
of .7% growth.
10-year notes
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PowerRating) had already opened above their Pullback From Highs
trigger, but exploded out of the Slim Jim they had traced in the quiet period
before the release of the report. Today’s move takes the TYU1 to a new
contract high, but also sets up a Turtle Soup Sell reversal below the Aug. 17
high, the previous 20-day high. A move below 106 30/32 triggers the
reversal.
T-bonds
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PowerRating) also surged one
point in a rally that took the market to just short of resistance at 105
26/36 before it pulled back to close up 25/32 at 105 18/32.
The selling in stock index futures was steep and reminiscent of the
freight train-like southerly ride last Tuesday on the day of the Federal Reserve’s announcement of
a .25% interest rate cut. There were no buyers on the way down and those
that got in the way got run over. S&P futures
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PowerRating)
slashed 15 handles lower before finding support in the 1166-67 area. The
market then closed at support in an intraday descending triangle, down
17.00 at 1163.50. Notice that
three down-pointing arrows from the Market
Bias Indicators Page gave a strong suggestion that stock index futures could decline (a factor
pointed out by Dave Landry as well).
In the currencies, British pounds
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PowerRating) have multiple
signals as they came back strongly from a lower pop opening. When a market
pops lower and is on the Momentum-5
List, an Off The Blocks
entry becomes viable (triggers) above the high of the previous day’s
last hour. This level also coincided with the pound’s Pullback From Highs
trigger.
Energies finished lower, with heating oil
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PowerRating) really
turning the gas on and tallying a 3.3%, or .0250 gain to .7815. From the
Momentum-5
List unleaded gasoline
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PowerRating) also pumped up .0135 to .7885. Nat gas
ran another 5% lower ahead of the now-dubious AGA report scheduled for
release tomorrow.
September copper
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PowerRating), a beaten-down market, appeared last night on the Momentum-5
List. One interpretation of the nascent momentum is that that we could be seeing an early indication of a turnaround in the economy.
Copper, sometimes referred to as the metal with a Ph.D. because it forecasts
economic cycles, is generally one of the first commodities to rally when expectations
of an economic recovery rise. However, copper also had a
Turtle Soup Plus One
Sell signal today which triggered this morning and could temper recent momentum in the
industrial metal.