MorningWord 7/2/15: Don’t forget what you are celebrating $SPY $QQQ

by Dan July 2, 2015 9:39 am • Commentary

Dazed and Confused is one of my favorite movies of the 1990s. At the time, it didn’t find a big audience outside of high school and college kids, but has since become a cult classic, especially amongst Gen Xers. And it launched the careers of Matthew McConaughey and Ben Affleck.  Just Google it kids.

While the movie is massively quotable, one line popped into my head this morning as I watched the S&P 500 futures rally on disappointing jobs data. It’s when the hot hippie teacher issues a warning to her students before schools out for the summer:

don’t forget what you are celebrating

I hate to go all Rick Santelli on you, but come on people. At this stage of the game it’s insane to see buyers of equity futures based on the possibility that one piece of data may put a Fed rate increase on hold for a few months.

I’ll just leave it for this before we sign off for the July 4th holiday. With the market still near all time highs you should only be buying stocks or equity index etfs/futures because you believe the U.S. economy and corporate profits will soon break out from the slow growth that we’ve seen throughout most of the recovery. If you are buying because you think you have a few extra months of ZIRP, then you aren’t really investing, you’re playing musical chairs and assuming you’ll find a seat when the music stops. It’s entirely possible the Fed is unable to exit ZIRP at a perceived opportune time, and will have to do so in a mediocre economy. If those are the conditions you want to be in while committing new capital to stocks near highs, then good luck with that.

Riding the Fed’s coattails is getting a little long in the tooth. This is kind of evident with the equity returns we’ve seen year to date. Don’t Fight the Fed works both ways. Everyone knows it’s coming, a few extra months no longer matter. For stocks to go higher from here we need to see good economic data. Really good.

When buying stocks on bad economic data points because of the Fed, don’t forget what you are celebrating.

Oh and have a great July 4th Holiday, we will be back Monday.