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How markets learned to stopped worrying, and love the taper

Adam Jeffery | CNBC

Stocks are rallying on the strong jobs report. Which begs the question: what happened to fear of tapering?

The nonfarm data 'thread the needle' perfectly: strong, yet not too strong. Additionally, several other signposts this week indicate a stronger economy:


1) Third quarter (Q3) gross domestic product was best since Q1 of 2012, though much of it was inventory building);

2) auto sales jumped over 16 million, their highest in six years;

3) October home sales rose to their highest since summer 2008, while permits highest since June 2008;

4) ISM manufacturing rallied to its highest in 2.5 years, and;

5) cyber sales were up 20 percent on Cyber Monday.

The problem for the Federal Reserve--and the markets--is that the trend is not unequivocally up. On the weak side we have:

1) ISM Services sector data;

2) earlier-month home sales reports were relatively soft, and;

3) Retail sales reports--both earnings and same-store sales reports--have disappointed amid a blitz of steep holiday discounts.

Still, if you throw in a budget deal, which may happen next week, you can certainly argue that the economy is slowly improving. To a certain extent, the market is reflecting this by way of:

1) economically sensitive stocks (Tech, Consumer Cyclicals, Financials, Industrials), which have led the market in the last month, and;

2) defensive stocks (Consumer Staples) and interest rate sensitive stocks (Telecom, Homebuilders), all of which have lagged.

"As long as that 10yr says below 3 percent, money flows easiest path is into US equities," Roberto Friedlander, head of Equity Trading at Brean Capital, told me this morning.


Elsewhere

1) Retailers report mixed results, and guidance is what matters. American Eagle, Zumiez, Ulta and Big Lots guided fourth quarter earnings below expectations. AEO said retail was "intensely promotional." AEO and BIG also reported earnings below expectations.

Five Below raised guidance, but it was still below Street expectations. Gap reported same store sales for November up two percent, better than 0.8 percent gain expected.

By CNBC's Bob Pisani

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street