Tomorrow, I will drive a 26-foot truck filled with household furnishings some 980 miles from Utah to California. The reason I bring this up is that I thought about this this morning and realized I feel the same way about driving this behemoth as I do about my trades when awaiting news from the Fed. In both cases, there is a certain amount of anxiety. I must admit, though, thinking about driving that massive vehicle through the great western desert is just a bit more intimidating.
Speaking of the Fed … Those who held their breath while waiting Mr. Bernanke’s comments have now exhaled forcefully. The market opened strongly and is holding the bullish line this morning.
- Bernanke, at an economic conference in Cambridge, Massachusetts on Wednesday, said a highly accommodative monetary policy was needed for the foreseeable future, and that the U.S. unemployment rate of 7.6 percent overstated the health of the job market.
Yes, I will admit that the market responds strongly to the comments from the Fed, but would the bulls be so inclined to such fervor if the fundamental economic and consumer data were not so favorable?
- Prices for both imports and exports have fallen every month since March, the longest such streak since 2008 when the world was mired in a financial crisis.
Although this speaks to a less-than-robust global economy, it also speaks to the spark that will ignite that economy, at least in the US. As product prices drop, consumers are more willing to spend. Simple as that and the incoming data proves it is as simple as that.
- U.S. retailers’ June sales suggest overall consumer spending is improving, even though lower-end shoppers are holding back on nonessential purchases. Through Thursday morning, 10 stores had registered a 4.2 percent increase in June sales at stores open at least a year, topping analysts’ expectation of a 3.6 percent rise, according to Thomson Reuters. The results show that same-store sales have perked up since May, when they rose 3.4 percent, and are much stronger than a year earlier, when they fell 1.8 percent. According to Thomson Reuters, a 3 percent increase in same-store sales reflects healthy consumer spending
And the pool of consumers is growing as more and more homeowners find the water line dropping and their heads are coming out from under.
- Foreclosure activity dropped in June to the lowest since December 2006, falling 35% on year to 127,790 properties, says RealtyTrac. Foreclosure starts sank 21% on month to the least since the end of 2005, while repossessions dropped 9%.
The above also speaks to a shrinking inventory of shadow homes that has hung like a shroud over the whole of the housing industry. Oh, and the hilltop screamers who recently predicted doom for the housing market with the rising rate of the 10-year Treasury bond must now be pulling at their natty hair as those same yields are dropping, which means the temporary spike in rates is abating and should continue to do so. My preference is that they come down slowly to help keep the rather hot housing market a bit cooler, but if they don’t, more houses on the market and increase in the construction of houses will.
So, the economic data coming in still points to a Us economy with some momentum. More importantly, it points to a consumer who is continuing to believe that things are improving and they will continue to improve.
- The Bloomberg Consumer Comfort Index starts the third quarter with another five-and-a-half-year high, lifted by improvements in consumers’ views of their personal finances and the buying climate.
In the end, with or without the Fed, the market is also getting happier, as it believes the next 6-9 months look favorable.
- The S&P has finished higher in nine of the last eleven sessions, has gained more than 5% since the 6/24 low, and has now erased the entirety of the “tapering = tightening” freak-out. In fact, the S&P is now just about 1% away from its all-time high and the DJIA only needs 117 points to reach a new high, while the NASDAQ Composite has broken out to a new cycle high and the Russell 2000 has continued to make new all-time highs over the past week.
Analysts are predicting (for what that is worth) a rise in both profit and revenue for this coming earnings season. If that happens, you either jump in with both feet or get out of the way. The market is looking to go higher, much higher.
Oh, and here is one more thought for you to ponder as you digest my words about the market going higher, much higher.
- The Bank of Japan said the world’s third-largest economy was finally recovering as it kept monetary policy steady, its most optimistic view in two-and-half years reflecting the impact of a weakening yen and its massive monetary stimulus on activity.
Trade in the day; Invest in your life …
