As I read through my news this weekend, it occurred to me that the world of the market is quite calm. The likes of perma bears Peter Schiff and Dr. Roubini still shout from the hilltops, but the many voices of doom are now few and periodic. It appears the market is entering a new phase, a consolidation phase. It appears the market is building a base for the future.
- Shrewd investors understand the stock market is a discounting mechanism of future fundamentals, and therefore stocks will move in advance of future growth.
This bodes well for investors and it suggests now is the time to capture the best of the best undervalued stocks. Soon enough, the inventory of undervalued stocks will decrease, as money has begun pouring into a market attracting money.
- The recent piling into stock funds — $11.3 billion in the past two weeks, the most since 2000 — indicates a riskier approach to investing from retail investors looking for yield.
Money is moving in the market, for sure. The years of market investors willing to accept sub-par yields seem to be ending. Money is also moving in the US economy, which is one reason money is moving in the market. For example, the housing sector, a key component of the US economy, the number of folks buying homes is on the rise, and the rippling from that will soon be heard in every facet of the US economy.
- U.S. sales of previously occupied homes rose in 2012 to their highest level in five years, spurred higher by record-low mortgage rates and steady hiring.
Keep in mind, that once the ball starts rolling, it picks up momentum, and as it picks up momentum, the money flow increases, which has a tendency to bring back the fundamental of supply and demand as a prime economic driver.
- The inventory of homes for sale dropped to 1.82 million in December, the lowest in 12 years.
The market is watching the mediocre earnings coming out, but it understands two things as it digests the numbers. It understands that these earnings, although not great, follow on the heels of several years of tremendous earnings growth. Deceleration is normal. The market also understands economic cycles. Yes, the US and the world have struggled economically for several years now, but it appears that economic struggle is turning the corner in the hardest hit area – Europe. As Europe recovers in 2013 and beyond, corporate earnings will reflect the recovery of the largest economy on the planet.
- All forward-looking indicators point to a resumption of European growth this spring, which should further reduce the euro zone’s aggregate fiscal deficit to below 2.5 percent of GDP in 2013. It stood around 3.4 percent last year, down from 4.1 percent in 2011. What’s more, Italy, Spain, Portugal, Ireland and Greece shrank their combined current account deficit to an estimated 1.5 percent of GDP in 2012 from 7 percent in 2008 and look set to balance their external accounts this year.
The US economy is moving slow but steady, and it appears it will pick up steam this year. Europe is on the mend and China has turned the corner solidly. Money is on the move both economically and in the market. Even the politicos in Washington are getting smart as they recognize they need to keep the train moving with action.
- Refrigerators are getting smart. A new model released earlier this month runs apps to help users browse recipes, create shopping lists and manage the expiration dates of items like yogurt and milk.
The above reminds us that things continually change, improve, move forward. It is the nature of what we do as humans. The market recognizes this and it responds as an indicator of the economic future. Right now, the indicator is pointing up.
The market is smart and US politicians are getting smart. Even refrigerators are getting smart. As a market player, are you smart? Do you see the inevitability of the future?
Trade in the day; Invest in your life …
