Stick With The Fundamentals
I guess good economic news is relative for the market these days, or maybe it is as I always say – the market ultimately cares about earnings more than anything else. Thus, today’s news that the US economy is still plugging along has done little to move the market to the upside.
- Gross domestic product expanded at a 2 percent annual rate, the Commerce Department said on Friday, accelerating from the second quarter’s 1.3 percent pace.
Perhaps the news from Amazon is more telling regarding market movement than GDP growth.
- Amazon.com Inc. reported its first quarterly net loss in more than five years on Thursday.
Then again, what is the story behind Amazon’s loss? It must be something other than the US consumer not buying because all indicators point to the US consumer spending.
- Consumer spending, which accounts for about 70 percent of U.S. economic activity, grew at a 2 percent rate after increasing 1.5 percent in the prior period.
It is worth looking into Amazon’s loss, as it appears to be an anomaly, thus it might be possible to get into that expensive stock at a discounted rate, and when the next quarter numbers come out, it is likely Amazon will return to glory. The reason I say this is that the US consumer is spending at a decent clip, a rate that keeps defying the oracles who keep saying the US consumer is holding back because of higher gasoline prices, higher inflation, higher fear, or whatever. Facts are facts, though, and the one below is positive indeed.
- Final sales to domestic purchasers, a measure of domestic demand, rose at a 2.3 percent pace, the fastest since the fourth quarter of 2010.
FYI, the above reflects a more accurate picture of US consumer spending, as it is the number left after subtracting exports (foreign consumers) and adding back imports (US consumers). The flipside of the above data is that even with US consumers spending at a decent clip in the face of all the negativity, businesses are very much afraid, or so they seem.
- Nonresidential investment [business spending] declined 1.3% in the third quarter after having risen at a 3.6% rate in the second quarter.
Yes, the negativity of the breathless media around the US election, the pending fiscal cliff, and the US debt has driven US businesses to suspend spending, but, like a knight in shining armor riding a white horse on a beautiful blue-sky day, the US consumer charges forward to keep the forces of negativity at bay.
- Residential investment jumped 14.4% in the third quarter after having climbed at an 8.5% pace in the previous quarter. The housing sector has been expanding at a double-digit pace for the past four quarters.
Again, I say, stick with the fundamentals, which is interesting because a reader just asked me asked about two famous technical indicators …
- Do you believe the “Death Cross” and the “Golden Cross” have predictive powers?
My short answer is, “no.” I have a longer answer about self-fulfilling prophecies, but I’ll save that for another day.
Trade in the day; Invest in your life …
