Yesterday, traders took profits.  Today, investors are buying the dip.  This is good news.  Every positive economic report takes us further and further away from the perceived reality of a double-dip recession.  The ISM report that came out today speaks strongly to the fact that our economy is simply healing slowly; that it is just a matter of time before the momentum catches up and things begin to move more quickly.

Along this line of thinking, the currency “battle” going on in the world today is good for our economy, the global economy, and the market as well.  Weak currencies open the door to greater exports, which means more manufacturing, which means more hiring, which means more consumers spending.  If the European and U.S. consumers open their wallets and spend, this means more manufacturing, and more hiring, which will lead to a full-blown global economic recovery.    

As for the U.S economy, the weakened dollar is serving us well right now, as a weak dollar helps increase our exports, which is one underlying reason for the better-than-expected ISM report.

As the September data begins to roll in, the Institute for Supply Management provides some good news on the service sector.  Its Non-Manufacturing Index grew to 53.2% from 51.5% in August.  That beat expectations of a smaller increase.  Looking at its individual components, the sector’s improvement over August is quite clear, but it remains relatively weak … In fact export orders, especially, are probably the highlight of this report.  The component had a huge 11.5% gain to the highest level in some time.  As exports increase, firms will need to hire additional workers in the U.S. to satisfy global demand.  Another important leading indicator, overall new orders, also increased during the month.

All in all, as long as no catastrophic outside event interrupts the global economic ecosystem, we will follow the historic economic cycle, more or less.  Simply, we have never had a time when we have not recovered from an economic downturn.  So, the issue is never “if,” it is always “when.”  Given the length of the recession (which technically ended in June 2009), and given the amount of time we have spent bouncing around in recent months, we are closer to breaking out than not breaking out.

Yes, the housing market is still bouncing around on its bottom.  Yes, unemployment is still high, and yes, corporate America is spending its cash on things other than hiring, but all of these things will change when both business confidence and consumer confidence goes up, which will happen if we keep getting better-than-expected economic reports, such as the ISM report that came out today.  Remember, the holiday shopping season is just around the corner.  Give yourself an early gift – go buy yourself an investment before they become too expensive.

Trade in the day; invest in your life …

Trader Ed