Dear Readers,
The market appears to have finally made up its mind on the big questions that kept it jittery all through the year. It seems to have shrugged off fears of a fresh economic downturn and/or a deflationary spiral, at least for now. This is more than just holiday spirit though. There are clear signs that the economy’s vitals have started to revive following the weak phase in the middle of the year. The proactive Fed and the recently enacted fiscal stimulus have helped the healing process mightily.
While this positive mood is perfectly justified, we shouldn’t lose sight of the risks altogether. The recovery remains fragile and the all-important labor market will take a very long time to get anywhere close to a ‘normal’ level. Europe’s problems, while contained at present, haven’t fully gone away. And China’s ability to control its inflation problem is far from certain. These are not issues to lose sleep over, but something to keep in mind when making investment decisions.
The market is justified in focusing on the improving big picture in these final days of the year and ignoring the occasional soft readings of the economy. Tuesday’s Case-Schiller and Conference Board reports would fall in that category. Consumer confidence was down in December, the Conference Board reported yesterday. But we know that the consumers have started to spend again; holiday sales to date bears that out.
Expect this trend to continue the next few trading sessions; overall quite markets, with no trend-shifting moves in either direction. Keep in mind though that thin trading volumes have a tendency to produce volatility as we have been seeing lately in the commodity markets.
Happy Holidays!
Sheraz Mian
P.S. What is Zacks Ahead of Wall Street? To find out more about Zacks Ahead of Wall Street, click here.
