As always these days, the market is offering lots for me to think about, which means fodder for today’s writing and, as well, lots of opportunity to make my money work.
First off, volatility is back, even if the VIX is not showing this to be the case. It is sitting around 14, more or less. It could be a bit higher, and that would make me feel better, but right now the number is irrelevant, other than it shows the market is not on the precipice.
- Japanese stocks regained their footing today after a number of sessions of volatility
The Nikkei is all over the map, as are the US markets, which makes “the market” quite unpredictable.
- Stocks opened higher on Tuesday as supportive comments from central banks around the world reassured investors that monetary policies designed to support the global economy would remain in place.
The Dow opened with a bang this morning, climbing higher above 200 and is now lower, but still solidly in the green. Is this movement about the global central banks or are there other reasons?
- The Conference Board’s Consumer Confidence Index, hit a five-year high in May. The index was reported at 76.2, which was well above the consensus expectation for a reading of 71.7, and also above last month’s revised reading of 68.1.
- At least seven states other than California — among them Connecticut, Utah and Wisconsin — have reported budget surpluses in recent weeks …
- U.S. home prices jumped 10.9 percent in March compared with a year ago, as a growing number of buyers bid on a tight supply of homes, driving prices higher.
The latter is both good news and bad, as I wrote about the other day, but the other two are solid reasons for the market to bounce higher. The fact that the big economic states are turning the corner on their serious debt issues speaks to what I have been saying for some time – the US economy is building toward a major expansion. Consider this – if ranked globally, California would be the 8th largest economy in the world. Now that is adding some punch to a US economy that has been growing slowly for over four years. And let us not forget …
- The United States posted its biggest monthly budget surplus in five years in April.
Now, I hope the federal government does not go wild with the revenue change, but the reality is pressure will build to spend some of that money and that means a slight reversal of the job-cutting trend that has marked the Obama Presidency. As well, it will create private sector jobs as the US government begins repairing the US infrastructure, which it will because that means spending in republican districts, as well as democratic districts. All of this means a market that will continue to trend upward for a long time.
Yet, the US is one thing and Japan and China are another. Japan is poised to turn the corner economically, but the jury is still out on whether its spending splurge will work. Me thinks it will, and I am not alone.
- Japan’s economy grew at an annual rate of 3.5% in the first three months of 2013, Japan’s Cabinet Office said Thursday. The expansion was much quicker than the 2.7% increase expected by analysts.
Heck, that GDP growth is better than the US and just about half of the hottest economy around – China. There is some counter-intuitive news on that front as well, and it speaks to more stable global economic growth.
- China prepares world for lower growth. Chinese Premier Li Keqiang has added to the campaign to get the world used to slower economic expansion in China as it embarks on reform, saying the country needs an annual expansion of 7% in order to double per capita GDP by 2020.
It is good news that China is purposefully slowing it growth for many reasons, but the fact remains it will still grow faster than any other of the big three economies. In this context, consider the following. Although it will be tough for China to double its per-capita growth in seven years, it will still be a much bigger economy no matter. And if Japan grows at 3% for those same seven years, it too will be a bigger economy and if the US only grows at 2%, the world economy will be much, much bigger. Now, throw in the largest economy on the planet (the EU) growing at 1% for the same period, and you have lots and lots of growth, the one thing the market likes almost as much as bigger earnings.
Bottom line? No matter how much the market bounces around day-to-day because of global central bank policy, in the end, it is the global economy that matters more.
Trade in the day; Invest in your life …
