Archive for the ‘Financial Outlook’ Category
Monday, March 1st, 2010
This morning the market is up on the news that consumer spending was higher than expected while incomes, though up, were lower than expected. The savings rate fell to 3.3%. At least we are still saving something. What was interesting about these numbers was that wages and salaries were up .5% but most of that was caused by working longer hours not with an increase in workers.
In every economic recovery jobs lag but the first sign of a jobs recovery is longer work weeks and an increase in part time workers. That seems to be holding true for this one though it seems slower.
ISM manufacturing for February and construction spending for January were also reported this morning. Construction spending was anticipated to be down .6%, an improvement from last month when it was down 1.2%. The actual number was in line with the expectations. The ISM index was targeted to be 58 but came in at 56.5. The market held up after these reports.
The numbers continue to show a slowly improving, struggling economy. Why hasn’t all that government spending translated into a stronger economy? Maybe because a lot of the spending will happen this year and next and most of the money so far has been used to save the banks. Maybe that was necessary but at some point the rest of the economy needs to recover. Healthier banks have not helped the overall economy yet.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, Important, Industry Analysis, Uncategorized, banks, housing, jobs | No Comments »
Friday, February 26th, 2010
This morning the government reported their final revision of last year’s 4th quarter GDP number. There is always an initial report of GDP and then two revisions. This one showed an increase to 5.9% from a previous report of 5.7%. Most of the revision was for inventory adjustments. Do not expect that kind of growth this year. Most likely GDP growth for 2010 will be in the 1 to 2.5% range.
Also this morning was the Chicago PMI report which was up to 62.6 in February from 61.5 in January. Then a few minutes later February’s University of Michigan Consumer Sentiment Report was released which was down to 73.6 from 74.4 in January.
None of these numbers really affected the market when they came out.
By 7:00 this morning the existing housing sales number came out. Earlier in the week we had the new home sales report which was very weak (down 11%) and that put downward pressure on stock prices. This morning’s report when it came out pushed prices down a little but not by much and the market recovered it all. Existing home sales fell 7.2%, more than expected, and inventory increased to 7.8 months in January from 7.2 months in December.
This week was full of statistics and none of them changed the picture of our economy. It is growing but sputtering and it is not producing any jobs. This has heightened fear in the stock market and that is not a bad thing as it means stock prices are not overheating, but neither is there much reason for the market to rise. It is going to be a stock picker’s environment.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, GDP, Important, Industry Analysis, Uncategorized, housing, stock market | No Comments »
Wednesday, February 24th, 2010
It appears the current corrective phase of the stock market rally that began last March is easing. There have been only three corrections of any consequence in the last year: in June, November and now this one that started in January. The two corrections last year spanned four to six weeks falling 5% to 7%. The current correction is in its sixth week with about a 7.5% correction. Since the correction won’t be over until the prices of the indices recover or exceed their recent highs we can’t say it is over or that it is in fact a correction.
A normal correction is 10% but any fall of 5% or more can be called a correction and a return to a bear market usually means a 20% fall or more. Corrections are normal and during each one fear begins to mount as people speculate on the possibility of returning to the bear market lows of last year. It is normal for fear to grip investors and in fact it is healthy for stock markets when fear has that much power over investors.
It is in the lack of fear where stock markets become over valued. The last clear sign of that was in the dot.com bubble.
So as long as fear holds so many investors frozen on the sidelines and as long as they are making virtually no return in money market funds the stock market will likely only have corrections, not a return to the bear market.
Of course the underlying economy also plays a big roll in bear and bull markets but as we have said in previous commentaries we are in a recovery, slow though it may be.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, Important, Industry Analysis, Uncategorized | No Comments »
Monday, February 22nd, 2010
Last week’s strong market, with the Dow up four days in a row, may slow down this week as there will be many new economic reports to digest. Traders will be looking for further evidence of an economic turn around and what effect it may have on corporate earnings so their focus will be on the statistics coming out of Washington.
This week’s report on home sales, both new and existing, will draw strong interest as housing is a very pervasive underlying economic force. Mortgage rates are very low and there have been several months of improvement (though small), but will that trend continue? There is a sense that the foreclosure rate could overwhelm the beginnings of a recovery. Falling prices and over supply might be good news for new buyers but not so good for the overall economy, especially for the banks.
The evidence continues to build that the economy is at an early stage of a recovery. That recovery appears to be broadening and may well have sustainability as our government plans on spending an obscene amount of money this year. That money will further fuel the recovery.
For investors it’s all about sustainability. What happens when the spending stops? What will happen if foreclosures swamp buyers’ appetite to step in to the housing market?
There is always something to worry about. It just seems fear is heightened at this time because we have just survived the worst recession since the Great Depression and we are still not out of its grip. Still, the facts are its grip is lessening.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, Uncategorized | No Comments »
Friday, February 19th, 2010
As mentioned yesterday where the wholesale inflation number was surprisingly higher than expected the retail inflation out this morning was very low. It actually shrank for the first time since 1982 if you take out food and energy. With those two items it still was very low. Wholesalers can not pass through inflation to the consumers, at least not yet in the face of a very weak economy.
On the other hand last night the Fed raised one of the two interest rates it controls. This is the rate that the central bank charges for emergency loans to banks. It went from .50% to .75%. This is a sign that the Fed sees enough improvement in the financial sector to start tightening money though this is one of the most benign tightenings it could undertake.
Inflation and the Fed’s action is good news both for the economy and the stock market. Inflation is not a problem yet and the Fed has signaled a willingness to fight future inflation by making a move, albeit a minor one, early. It is also a sign that the dollar may not be as weak as feared. Of course this is only one small first step. Still the battered dollar is faced with a massive spending program which will continue to push its value down.
All and all this was a good week for the stock market and the economy. Only time will tell us if the correction is over.
Good Trading
Steve Peasley
Posted in Currency, Financial Outlook, Industry Analysis, Uncategorized, commodities, inflation | No Comments »
