Profitable Pitfalls

A slump in equity markets was the dominant theme Tuesday despite some upbeat consumer and corporate numbers. The pound was the top performer while the New Zealand dollar lagged. AUDUSD was stopped out. A new Index was posted before the London close, prior to the stocks rout. Both Premium shorts in indices are in the green.

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Caterpillar is a great proxy for global growth. The heavy equipment maker's machines are in high demand when the economy is strong and that's exactly what the company reported late Tuesday. The news sent shares of CAT to $162 from $153 in what looked like great news. But markets are forward looking and worries about Caterpillar's borrowing costs started to quickly appear in markets. A positive start for the S&P 500 began to sour and shares of CAT dropped to $144. The main index eventually finished down 36 points to 2634.

The pop-and-drop is increasingly familiar as earnings season ramps up. It started with a string of great numbers from financials that sparked rallies and then reversals.

It's not a sign of a struggle in the global economy but rather a worry that equity market valuations are too high and that central banks – especially the Fed – may tighten too much. Economic data was glowing with consumer confidence at 128.7 vs 126.0 expected and new home sales at 694K compared to 630K expected.

At the very least, the latest moves are a sign of a market that's tough to please. As we often repeat, the ultimate signal in a market is one that falls despite good news. It may be time to take heed.