Happy Anniversary

The Big Picture

 It’s been three years since the stock market bottomed and its getting more difficult for the naysayers.  The labor market is improving, consumer confidence is rising and the major market averages have nearly doubled from their March 9, 2009 lows.

First, look at the jobs picture.  Last month the economy created 227,000 new jobs, the third consecutive month of 200,000 plus new jobs created and six consecutive months of job growth.

The quality of the jobs created is also improving.  No longer concentrated in low-paying service jobs, the recent gains were across the board.  Service jobs continue to dominate the growth, a reflection of our service-based economy.  However, professional service jobs increased by 82,000, including a 45,200 jump in temporary positions (a precursor to permanent hiring), a sign that big business is finally stepping up to the plate.  Education and healthcare hiring rose 71,000, the best showing since September of 2006.  And for those who dismiss the gains, citing warm weather seasonal distortions, take a look at construction hiring.  The drop of 13,000, the largest drop in that category since January of 2011, is counter-intuitive to that argument.

The improvement in the labor market has bolstered consumer confidence.  According to the Bloomberg consumer comfort index, consumers are feeling better about their finances and job prospects.  That rise in confidence to four-year highs could translate into consumer spending, which accounts for 70% of U.S. economic activity.   More consumer spending equals increased revenues and profits for corporations and points to more gains for the stock market.

The stock market is a leading economic indicator, predicting changes in the economy.  Since the March 9, 2009 market lows, the Dow Jones Industrial Average has gained 97%.  The S&P 500 has added 103% while the NASDAQ has jumped 134% and briefly traded above 3,000 for the first time December of 2000 – the year of the dot.com bubble burst.

I, Investor

There remain headwinds to the economy and further stock market gains.  Speaking before the Senate Banking Committee earlier this month, Federal Reserve Board chairman Ben Bernanke warned of a slower-than-normal recovery and cited the plight of the nearly six-million long-term unemployed as a threat to the nation’s supply of skilled workers.

The housing market is also weighing on the economic recovery.    Not only did the housing market implosion destroy household wealth, it severely limited household borrowing ability, affecting everything from auto sales and discretionary spending to investments.

Greece and its debt crisis have been in the headlines for two years and the resolution, while tantalizingly close, has yet to be decisively resolved. The Euro zone crisis threatens to spill over from other member countries such as Portugal, Italy, Ireland and Spain into non-Euro countries such as Hungary and the United Kingdom.

Those Euro zone woes have translated into slower growth for the world’s number two economy, China.  With weak demand for its exports, China reported its largest trade deficit in more than a decade.  Record imports of crude oil as well as a surge in copper and iron ore are supporting economic activity in both the U.S and Europe and may blunt criticism of China’s trade and currency policy.

However, most of these concerns have been discounted by the market.  Focus now turns to domestic economic policy and data.  The Federal Open Market Committee meets this week to review monetary policy and, against the backdrop of an improving economy, may leave policy unchanged.  Retail sales figures and inflation data on both the producer and consumer level will be released this week, along with industrial production and capacity utilization data from the Federal Reserve and manufacturing outlooks from the Philadelphia Fed.

Next week’s calendar is dominated by housing statistics.  Housing starts, existing and new home sales data join the National Association of Home Builder’s housing market index.  Barring any dramatic, unexpected events, stocks appear poised to successfully challenge near-term resistance.

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