Today’s action in the market belies my anxiety over the pending budget issues. One does not like to get out in front of a move such as this (coming on the heels of S&P’s long-term downgrade for the U.S.), but it is difficult not to forget about all of the headwinds facing the U.S. economic recovery when the DIJA leaps over 200 points intraday. Nevertheless, those headwinds are very real, very present, and very dangerous. Given that, it is apparent the U.S. economic recovery is pushing right through the headwinds, at the moment.
So much good economic news has come out in the past couple of days it is hard to see where to start. Hmmm … How about we look at one of the stronger headwinds trying to keep the U.S. economy back – the real estate market. The numbers for March show an unexpectedly bigger rise in existing home sales (mostly investors but it means the inventory is dropping) as well as a rise in new mortgage applications (this is really good news). This is bigger news than it appears as what happens in this market directly affects the financial sector, specifically consumer-revenue driven banks, such as Wells Fargo.
Wells Fargo reported good profit but weaker than expected earnings, which means its consumer-driven revenue is down, which means it is not lending enough money. That just might be about to change. The bank announced it averaged loans of $754.1 billion, up $402 million from the prior quarter. Improvement, yes, but if the bank wants to improve its consumer-driven revenue substantially, it needs to strengthen that lending flow. This will be easier every quarter as it continues winding down its toxic-asset portfolio and keeps adding money each quarter (some $850 million this quarter) to its reserves. Do you seek opportunity? Think financials …
Two-thirds of all the states reported a drop in unemployment (11 reported a rise). Regarding future hiring, confidence is up in the business sector. Employers announced fewer planned job cuts in March, even as government sector layoffs mounted. The number of jobs cut fell 18% to 41,528 from February’s 50,702.
March retail sales are up, big ticket items are up, and manufacturing is up. The dollar remains weak, but that means more exports and U.S. based international businesses see higher revenues and more profit, which could easily translate to more hiring in the U.S. I could go on, but …
When one writes daily, as I do, it is hard not to get stuck in the mud of myopia. Lately, I have focused laser-like on the budget issues and the potential consequences, and rightfully so. Today, however, I am reminded the economic train still picking up steam and businesses are still making money, and lots of it. As I have said, ultimately, the market moves on profit and growth, and this is where the opportunity lies. Look to technology today, and you will see the power of earnings and growth. The technology earning reports that came out last night are driving the upsurge today. As they did for me, both the above and the strengthening U.S. economic recovery reminded the market that the economic train is still moving, even if the headwinds are blowing strong. All we have to watch out for are logs on the tracks or some badly bent rails.
Trade in the day – Invest in your life …
