Well, I guess the market has found a place to bargain. The extreme volatility seems to have dissipated and it has been replaced with a more normal give and take. I suspect the market is digesting all that has happened recently and it is now thinking about where it goes from here.
Earnings reports still have to come in and the “uncertainty” over the US and global economy has to go away before the market will move another leg up, I suspect. That’s fine, because as we wait, more good news and data will be forthcoming, starting with the following.
- The U.S. Treasury Department said its borrowing from October through December will be the lowest for the period in seven years as the economy gains momentum, boosting tax receipts.
If one wanted a sure sign, I mean a real positive marker that the US economy is doing better, way better, than the above is it. The US government receives more taxes when it either a) raises taxes, or b) more people are making more money and paying more taxes. Since taxes have not been raised, then “b” is the obvious choice.
If it is the case that more folks are making more money and paying more taxes (as are corporations and small businesses BTW), then, it logically follows that more money will find its way into both businesses and the market. The logical outcome there is the market will go up over both the shorter and longer term.
In the short term, the market will go up because we are headed into the two most intensive shopping months of the year. It will go up in the longer term because consumers will feel freer to spend more money at any time of the year as the US economy continues to improve.
As well, if gasoline prices continue to drop (as they look like they will), if earnings keep coming in better than expected (they will if the consumer increases spending), and the US government gets its financial house in order, then the market has a brighter longer-term future.
Don’t underestimate the latter in the above series in terms of market momentum. The US showing the world the largest government on the planet can reduce its deficit spending and overall debt is important, as is the simple fact that reducing US debt makes investors more confident that taxes going up is less likely, which paints an even brighter picture for both business and consumers.
- U.S. budget deficits have been falling since 2009, and the 2014 deficit was 2.8 percent of gross domestic product, according to the Congressional Budget Office. That is down from 9.8 percent of GDP in 2009, when President Barack Obama took office.
BTW, where has the breathless media been with this news? They certainly were not shy about giving the celebrity analysts a soapbox to tell us all how hyper-inflation was coming back in 2009 when Congress passed the stimulus package and the Fed embarked on Quantitative Easing.
Interestingly, the problem now, as the talking heads are telling us, is the possibility of deflation. The complaint now is that inflation is too low. Well, that issue will be addressed with two important realities that will make the future market picture still brighter.
1) US worker pay is starting to rise as demand for workers rises.
2) The Fed will let interest rates rise in 2015.
All in all, today’s market movement should be what we see more of as we move forward toward the end of the year and beyond. The bumps up will be followed by lesser downs in a trend line that is headed up.
Where it will all end up at the end of 2014 is unknown, but my guess is the Dow will pass 18,000 and the S&P 500 will close out above 2050. Yup! You heard it here – my guess at the actual numbers for a market that is bound to go up. Go figure.
Trade in the day; invest in your life …
