The morning is starting off well. The market is pushing higher, even in the face of The Fed’s tapering announcement and the continuing emerging market “crisis”.
- GDP Grows for 18th Straight Quarter
Perhaps the market has seen through the rising dust from the earlier stampede and is now looking toward the fundamentals (the green grass), if only briefly.
- The U.S. economy expanded at a 3.2 percent pace in the fourth quarter as Americans’ spending climbed the most in three years.
- Growth over the second half of the year came in at a 3.7 percent pace, up sharply from 1.8 percent in the first six months of the year. It was the biggest half-year increase since the second half of 2003.
Reasons exist why the market stampeded as it has recently done and reasons exist why the herd calms down. One of those reasons is the calming influence of the consumer, particularly the US consumer and signs that trade and business investment are moving in the right direction. Relative to consumer spending, just two short months ago, the breathless media reported a dismal holiday shopping season. On the contrary, the US consumer spent more in the fourth quarter than he or she has in three years.
- Consumer spending was the main driver of fourth-quarter growth, but there was also help from other segments of the economy such as trade and business investment.
Another is the reality in the world. Sure, China is reporting a PMI drop, but at the same time, manufacturing activity is up 9.7% year-over-year, domestic demand is on the rise, and it is growing above 7% annually.
- A completion of large projects in the United States weighed on Ericsson’s earnings in the fourth quarter, but the world’s biggest maker of mobile networks said demand was picking up in Europe and China.
Not bad to see demand for wireless rising in China, especially since China is economically downtrodden. More importantly, though, the fact that the emerging market “crisis” is contained to the emerging markets, at least for the moment, is perhaps having a calming effect on the market.
- Italy sold five-year notes at a record-low yield, underscoring the resilience of Europe’s most-indebted nations to this week’s selloff in emerging-market assets.
Signs of improving growth in Europe overall (Germany and the UK are coming on), as well as signs that the PIIGS are making a slow but sure economic comeback (think Ireland – recently retired from the “bailout” program).
- Spain’s GDP growth strengthened to 0.3% on quarter in Q4 from 0.1% in Q3. Rising exports helped lift the economy, while there were also signs of a recovery in domestic demand.
As to a negative fundamental (pending home sales), which, in the end, the market just might view as a positive …
- Contracts to purchase previously owned homes in the U.S. plunged in December by the most since May 2010 as higher borrowing costs and bad weather held back sales.
I expect as the economic fundamentals keep improving in the US and around the globe, the US real estate market will improve in 2014, but, for now, it is healthy for it to correct, just as it is healthy for the market to correct, now and then.
As to the correction … I don’t know if it is over, but if the S&P 500 ends up strongly in the green today, it will have moved further away 1770, the number many technical analysts see as the floor. The upper band of resistance is 1820, so they say, and if the S&P 500 breaks through, it is a buy signal all the way. It is a number to keep in mind.
Trade in the day; Invest in your life …
