Courtesy of Sabrient Systems and Gradient Analytics
U.S. equities continue to shrug off worrisome global economics and the doomsday prognostications. The Dow, S&P 500, and Nasdaq are now all above psychological resistance levels of 13,000, 1400, and 3,000, respectively. Even Europe and China have seen a sustained bounce in equities. But everyone is wondering, how long can this continue given the dicey global economic situation?
Right now the large-cap S&P 500 indicates an earnings yield of over 7%–which reflects a historically high risk premium when compared to the 10-year Treasury yield–and an average dividend yield of approximately 2.2%. This could be shaping up to be a historic buying opportunity.
So, if Europe can stave off a sovereign debt and banking system catastrophe, we should continue to see capital flow into equities (even if in fits and starts), particularly U.S. stocks. In fact, the late-July rally led by defensive sectors like Utilities, Consumer Staples, and Healthcare, rather than a fearful flight to safety and a bearish development, actually might be simply an early-stage flight to higher income dividend payers.
Besides the ongoing uncertainty in Europe, lack of jobs growth continues to weigh heavily on investor psyches. The Bureau of Labor Statistics measures unemployment in a variety of ways, and their metrics are designated U1 through U6. U3 is the official unemployment rate that gets widely reported, which is the proportion of the civilian labor force that is unemployed and actively seeking employment. However, U6 is a bigger-picture view that adds in “discouraged workers” (who have given up on finding work), plus “marginally attached workers” (who are able to work but have not been looking recently), plus part-time workers who would prefer to be employed full time.
U3 is now at 8.3%, as we all know. It was around 4% at the beginning of the century. U6 for July came in at 15.0%, which is also up-trending slightly from April’s 14.5%. It was around 7% at the start of the century. U6 is probably more reflective of the average American’s perception. The highest recent U6 reading was in October 2009 at 17.2%.
Looking at the SPY chart, it closed Wednesday at 140.49 and has been trading since mid-May within a very clear bullish rising channel. It is now dealing with technical resistance from the convergence of the top of the rising channel and the…
