I always say the market wants to go up, and I believe that is true, but sometimes, the weight of reality presses down on the less forceful kernel of optimism. The economic and market picture is not as bad as it seems, but the reality is that because of the global economic slowdown (Europe and China), corporate earnings will be diminished. The market understands this, and there will be a response, but will it be a massive correction because of the less-than-stellar predicted earnings? Me thinks not, but, as always, we will see …
- What do you see as the most important economic changes taking place after the election if Obama is reelected? Specifically, in the stock market, say dividend tax increases?
Wading into politics is this column is not my thing. Always, though, I write about my thinking and many take that as political, but the truth is I call things as I see them, so here goes.
I see nothing in general changing economically if President Obama is reelected. I suspect the market will feel a bit more certain about the future, and business might hire more, but many will see his reelection as a negative and many will see it as a positive. In the end, his reelection, if it happens, will be a wash. As to any specific changes in tax policy, no matter who is president, those changes are coming. Maybe the short- and long-term capital gains rates will change, or maybe dividends will be taxed a higher rate. At this point, no one knows. Be assured, though, the US government will need to raise revenue if it is to resolve US debt issues. Cutting spending alone will damage the economy, the market, and, in the end, it will not get the job done.
Going back to the “kernel of optimism” referenced a moment ago …
China’s services sector rebounded in September after its growth hit a one-year low in August. The HSBC services sector Purchasing Managers’ Index rose to 54.3 in September from 52.0 in August, rebounding to its highest level since May thanks to an uptick in the new business sub-index to 54.0 – also the highest level in four months.
More than few indicators suggest China’s economy is bottoming. In fact, its economists predict its annualized growth will be 7.7%, as opposed to the 7% predicted just last month. Neither number really matters because an annualized prediction from an economist is like an annualized prediction from a weatherperson – it ain’t anything you can take to the bank. The more important issue, as it in the US and Europe, is the health of the consumer, so consider the following.
China’s retail sales growth slowed during the Golden Week holiday. The week-long National Day holiday at the beginning of October saw hundreds of millions of Chinese hit the roads and shopping malls, straining capacity at tourist destinations and crowding trains and airports. Overall, retail sales revenue grew 15 percent to hit 800.6 billion yuan ($127.4 billion) during the National Day holiday, although that marked a cool down from the 17.5 percent growth last year.
True, sales revenue dropped 2.5% year-over-year, but it is still growing at a 15% clip. What would the market say if we had that type of retail sales growth here? Speaking of growth, check out the hospitality sector for possible opportunity. Keep in mind, the current US employment report showed increased hiring in the restaurant industry tune of almost 15% of all hires.
Restaurant hiring can be correlated to industry growth says Hudson Riehle, Senior Vice President of the Research and Knowledge Group for the National Restaurant Association. “Restaurant sales this year are expected to reach 632 billion dollars this year, that’s up 3.5% from last year – and while it’s more modest growth than we’ve seen over the last decade, the increases are keeping up with consumer demand,” Riehle said.
Now how do you like that? US consumers are not only buying houses and cars, but they are going out to eat as well. If the power players in Europe can only get that economic zone back on track, we might be reading about good economic news there. Oh, wait! The power players in Europe are getting the economic zone back on track.
Eurozone finance ministers will launch their 500 billion euro ($653.00 billion) permanent bailout fund on Monday, putting in place a major defense against the debt crisis that now threatens Spain. The fund, called the European Stability Mechanism (ESM), will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track. …
Trade in the day; Invest in your life …
