As I've shared, I agree with the consensus view that good news remains bad news because good news means the tapering of QE may emerge sooner than later. I.e., traders are, or were, ignoring the improved corporate profit implications of a growing economy and focusing on the potentially adverse effects of rising interest rates.
Then came last Friday's jobs number, 203,000, which was 18,000 better than the consensus estimate, and the Dow rallied 200 points. Some pundits were claiming that Friday's rally marked a change of attitude, that, at last, good news is good news. As I suggested yesterday, I remain skeptical, largely based on the fact that Wall Street was handicapping a 230 to 240k (the whisper number) jobs number. Anything under that would keep the Fed on hold, or so traders were thinking.
Another development Friday was the rumor (now confirmed) that the house and senate budget committees were very close to a deal: One that would essentially avert the pending January standoff. Now that would be the kind of good news Wall Street would welcome. In fact, stock index futures rallied this afternoon on reports that it might very well be a passable deal. However, as I type, futures have retreated to about the flatline.
Now here's the thing, I'm thinking that a passable budget deal, along with recently improved economic data, opens the door for the Fed to do a little QE tapering as early as next week. I don't know that they will, but if they don't I think they'd be passing on a golden opportunity to at least get started on doing what is entirely necessary. In essence, I'm thinking that a small cut in QE, at this juncture, may not completely derail the stock or bond markets (not that a correction here would be at all a bad thing), which is, in my opinion, what's been keeping the Fed on the fence.
Frankly, I wish they'd go big, let the markets adjust as necessary (would be short-term ugly) and meander their way into next year without the dreaded taper looming overhead. But, alas, that for sure ain't happening...