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Friday, August 04, 2006

Buy the Rumor, Sell the News

By William Trent, CFA of Stock Market Beat

Today’s employment report is producing the umpteenth rally based on the notion that the Federal Reserve will soon stop raising rates. As the accompanying chart shows, employment is clearly slowing by our favored measure, the year/year unadjusted change.

We commented before on the incongruity of the market rallying on weak economic news when the bulls have long pointed to a strong economy as the reason stocks should be higher.
Which brings us to our title: the old saw that a trader should buy the rumor and sell the news.

The market has been buying on repeated rumors that the Fed will be finished with rate hikes soon. You can finish the phrase to get our best guess as to what will happen when the Fed actually does pause.

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