U.S. stocks have reached 50% retracement since their March 2009 lows. In addition, many foreign equity markets have recovered by more than 50%. Regardless of unemployment at almost at 10.2 % and other bearish factors the market continues to advance.
September has historically been a month the stock market declines. Last month the S&P 500 had a low of 987 and at one point made a high of 1075.75 before finishing the month at 1053. October was the anniversary the crash of 2008. The S&P 500 went from 1300 last September to 750 by the end of the year. We were told the U.S. financial system was on the verge of collapsing. Thanks to the stimulus plan from the U.S. Government the market was saved from a historical free fall. We are on our way out of the recession and the market seems to telling us that the economic recovery will be sustained.
December S&P500 Futures - Daily
As you can see from the chart above we are on a path to strong recovery. The S&P500 futures recently hit a new 13 month high of 1112.25 and the Dow Jones futures has hit a new high of 10427. Also, stock futures have rallied from the March lows with very few corrections. The recent market strength is impressive and many analysts believe we will continue to 1250.00 in the S&P500.
In my last article you may recall many other global economies are stabilizing or growing. Also, many companies had better than expected earnings. Despite what many doomsayers say about the U.S., which is not entirely wrong, the U.S. economy will get better. Thanks to President Obama’s stimulus plan, the economy has been jump started and is heading in the right direction. Oil prices have retreated from the $147 mark. Mortgage rates are low and should help home owners refinance and save. Many new programs from the government have been implemented to help the American people. The “cash for clunkers” program helped many Americans buy new cars by giving them a $4500 dollar trade-in for their old vehicle. Cars that got less than 18 MPG received the money for a new, more economical car. First time homebuyers received an $8000 credit and this program will continue to help consumers save. Many fear that the first stimulus plan was not large enough and might not be enough to pull us out of this recession. So far, it seems to be having a positive impact. There is some talk that more stimulus is needed and that a stimulus 2.0 plan is possible. Now that we have hit the 50% retracement in the stock futures, I would expect to see some selling pressure coming into the market. I believe a lot of bears are sitting on the sidelines patiently waiting for this level. I believe this market is due for a small correction, but it might surprise some of us and continue its strength and continue to new highs.
Let’s be fair and look at some of the negative factors that could contribute to a potential setback in the future. The October unemployment rate is currently at 10.2%. Banks seem to be getting a lot of negative press due to the bailouts received from the TARP. The “too big to fail” concept remains highly controversial. News of insider trading and a slap on the wrist for these actions has many people upset, while bankers are receiving millions of dollars in bonuses. The U.S. dollar is making 15 month lows and most likely this trend will continue. Some believe that there is no actual “rally” in the stock market due to economic improvement, but is actually due to the consequence of the dollar carry trade.
But the internals were markedly nasty. Top-line, U-3, is now reported at 10.2%. But U-6 is 17.5%, rising dramatically from 17.0% previously (both "seasonally adjusted.")
What I really don't like however is the household survey information.Here, once again, is my personal set of data that I use for employment situations, and again, there is no positive trend change in either. Let's start with the y/o/y trends in the "employed":
Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 10 percent, and no revolving credit decreased at an annual rate of 3-3/4 percent. In September, consumer credit decreased at an annual rate of 7-1/4 percent.
Unemployment and Consumer Credit charts info from Karl Denninger’s report the Market Ticker
Sure there is a lot of negative news that we might not like to hear, but the bottom line is the economy will slowly improve over time. Banks aren’t going to just start lending after the biggest credit defaults in history just occurred. Employers are slowly hiring again as they gain confidence in the economy. Credit will probably remain tight until we regain more confidence and the economy stabilizes. Many people are skeptical about what the Fed is doing and there is fear that we are headed for a double dip recession in the U.S. Peter Schiff, Marc Faber, and Gerald Celente are a few analysts that are more commonly known for their doom and gloom reports. They say we are headed for hyperinflation and are destined to have some of the characteristics of the economy of Zimbabwe. Other analysts believe that we could take an opposite path and experience the deflationary situation that Japan is battling against. Everyone has their opinions, but when you look at the history of the US, we have always been able to recover from economic downturns.
If you have questions or comments about this article, please contact Dave at 1.877.872.3348 or send him an email at david.pappas@archerfinancials.com.
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