INSIGHTS
FEB
3
DOW 14,009 WEEK BEGINS...
So, after five years of tumult and frustration, the market has broken through that magical 14,000 barrier on the Dow. While it may seem significant to the media and to most lay people, it really is just a number and we don’t like to get caught up in simple numbers. The thing that needs to be remembered is that while all time highs on the Dow and the S&P are very close, its not those numbers that truly matters. It’s the follow through. It takes an average of six to eight months to significantly break through any “major milestone”. That being said, if we are to have a significant push to the upside, we may not truly see it till late summer, early fall.
Much is being made of strong inflows into stock funds. Remember, January is traditionally a strong month for inflows anyway. Bond funds also did very well so we are not in the “great rotation” corner just yet.
Short term, the market probably won’t have much more than a five percent move from here and then it will stall.
Economic conditions are not perfect and we still have a few major issues to deal with. Least of which is unemployment. While we continue to believe that unemployment will come down to the 7.3% level by the end of the year, that’s still a significant drain on the economy.
The Federal Reserve has run out of ammunition and now is hoping that all the money they have pumped into the system will bear fruit. We believe that as counter-intuitive as it may seem, raising rates is the only solution. Not to stratospheric levels but to the 2.5 % range.
The Super Bowl is today and we are writing this before the pre-pre-game has started. We are 0-6 in the playoffs and expect fully to be 0-7 after today’s game. San Francisco 31 Baltimore 23.
Back to less important things. This week we will continue to see earnings reports and we expect they will continue to surprise. The economy has been in a period of very low growth for so long, most companies continue to reap solid profits from less. These leaner and meaner companies continue to sit on hoards of cash and under a normal economic environment, they would be looking to either expand or purchase companies that fit with their future plans. It is obvious to us that they either believe that the price valuations of intended targets will come down or the economy will continue to be in a slow growth phase.
The week coming up has some interesting data points. Factory Orders on Monday could surprise but it is a lagging indicator and few follow it. It still can show some interesting underlying strength in the economy.
ISM-Non-manufacturing index should continue to read positive. This index is important because it combines critical non-manufacturing data to give a picture of the true economy now.
The Jobless report while shaky last week should continue to get better. Private sector hiring is increasing, albeit slowly.
We expect the market to be choppy this week but there will be a test of all-time highs at some point.
Much is being made of strong inflows into stock funds. Remember, January is traditionally a strong month for inflows anyway. Bond funds also did very well so we are not in the “great rotation” corner just yet.
Short term, the market probably won’t have much more than a five percent move from here and then it will stall.
Economic conditions are not perfect and we still have a few major issues to deal with. Least of which is unemployment. While we continue to believe that unemployment will come down to the 7.3% level by the end of the year, that’s still a significant drain on the economy.
The Federal Reserve has run out of ammunition and now is hoping that all the money they have pumped into the system will bear fruit. We believe that as counter-intuitive as it may seem, raising rates is the only solution. Not to stratospheric levels but to the 2.5 % range.
The Super Bowl is today and we are writing this before the pre-pre-game has started. We are 0-6 in the playoffs and expect fully to be 0-7 after today’s game. San Francisco 31 Baltimore 23.
Back to less important things. This week we will continue to see earnings reports and we expect they will continue to surprise. The economy has been in a period of very low growth for so long, most companies continue to reap solid profits from less. These leaner and meaner companies continue to sit on hoards of cash and under a normal economic environment, they would be looking to either expand or purchase companies that fit with their future plans. It is obvious to us that they either believe that the price valuations of intended targets will come down or the economy will continue to be in a slow growth phase.
The week coming up has some interesting data points. Factory Orders on Monday could surprise but it is a lagging indicator and few follow it. It still can show some interesting underlying strength in the economy.
ISM-Non-manufacturing index should continue to read positive. This index is important because it combines critical non-manufacturing data to give a picture of the true economy now.
The Jobless report while shaky last week should continue to get better. Private sector hiring is increasing, albeit slowly.
We expect the market to be choppy this week but there will be a test of all-time highs at some point.