Amazing how all is well with global economy after a 7 percent rally in the S&P500. We have a very smart friend who constantly reminds us that many, if not, most, “retrofit” fundamentals to market direction. If markets are going down, the fundamentals, or, at least, the perception of the fundamentals are poor. If markets are moving up, all was well with the fundamentals.
George Soros says markets move from perception to reality and back to perception:
In my theory of reflexivity I assert that the thinking of economic agents serves two functions. On the one hand, they try to understand reality; that is the cognitive function. On the other, they try to make an impact on the situation. That is the participating, or manipulative, function.
The two functions connect reality and the participants’ perception of reality in opposite directions. As long as the two functions work independently of each other they produce determinate results. When they operate simultaneously they interfere with each other. That is the case not only in the financial markets but also in many other social situations.
Now we need some reality to back-up the perception. A good employment number would be nice start followed by some nice earnings. Stay tuned and stay with it until it stops working.