This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Global Macro: The 'New Normal' in Markets

NEW YORK (TheStreet) -- Developing economies have been on the offensive, enacting wide-scale easing of monetary policy, which has pushed money into American markets.

While many have cited the lack of economic support as a reason for risk assets to pull back, markets are getting comfortable with the "new normal." The new normal brings with it lower growth measures, around 2% growth in gross domestic product, and overall acceptable, yet not remarkable, economic readings.

For investors, the real importance lies in beating or missing expectations. Markets price in expectations, and whether a company or an economy over-performs or underperforms that measure indicates future price movement.

For example, U.S. employment data in weeks past were encouraging, but not up to pre-recession levels. Job numbers, however, outperformed expectations, leading to equities' current trajectory upward. Markets are short-sighted, and price action relative to expectation proves that to be true.


The pair below is of S&P Equal Weight ETF (RSP) over SPDR S&P 500 (SPY). The pair measures market breadth, or the number of companies participating in price action.

If the pair moves up on days that equity markets nominally move up, then there was broad participation in the move. Broad moves are more favorable to a trend's strength than moves without broad participation.

As we can be seen below, the pair has broken out of its trend sideways. This push higher signals that investors are bullish on U.S. equities and that risk-on sectors are going to continue their uptrend. Equity indexes look slightly overbought, and so a near-term consolidation could be in order.

The next pair uses Treasury markets to measure risk sentiment in the U.S. economy. The chart below is of Barclays 1-3 Year Treasury Bond Fund (SHY) over Barclays 20 Year Treasury Bond Fund (TLT).

As the pair moves higher, the yield curve steepens. A steeper yield curve is bullish for risk assets.

The pair has recently broken out of its downtrend and continues to push higher alongside equities. Bond markets tend to predict future movements in equities, and so when this pair begins to falter, investors should begin to set their portfolios in a more defensive position.

Stock quotes in this article: SPY, RSP, SHY, TLT, IEF 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,392.80 +130.24 0.80%
S&P 500 1,855.12 +12.14 0.66%
NASDAQ 4,065.6560 +31.4950 0.78%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs