Wednesday, August 27, 2014

Resilient equity market defies skeptics for now

News about the U.S. equity market these days leads with the new S&P record, non-inflation adjusted of course.  Most investors will ignore the "record" talk, but can't argue with the ongoing positive direction, slowly but one could wonder how surely.  As long as that's the "wonder", one could suggest that the modest upward bias can continue near term.

Certainly compared to Europe and Japan, the U.S. economy looks strong, not strong by absolute standards but strong by today's relative measure.  Consumer confidence polling suggests a more positive bias than would be expected here and consumer spending is stable to growing modestly, although some suggest that more of that spending is being financed by debt when compared to recent recovery years.  Confidence begets risk taking, however mild relative to pre-recession levels.

The unemployment outlook is said by many to be improving, but any analysis of the components of employment growth do not suggest such a rosy picture.  Any type of growth is welcome, but this is not the type that is needed for middle class security for more.  Wage growth remains stagnant except in a few distinct areas despite continued modest improvement in productivity.

There are two big positives seen here.  First is the growth in durable goods orders in recent months, durable goods ordered for factories and as capital investment.  Other than the current purchases, this is not a short term pop for the economy but over time it could be immensely positive if it continues and impacts efficiency and production capacity.  The second, not documented by any concrete statistics but widely anecdotal, is the continued increase in small business start-ups, across many areas of commerce.  It should be noted that JPMorgan had a significant increase in small business lending in the second quarter.  It suggests that the U.S. innovation model is alive and well and that more goods and services are tending to be "made in America" businesses, ones that will keep profits to be invested in this country.  That is the hope.

The two big clouds that are not on the horizon but instead are hanging directly overhead are geopolitical events and the "functioning" of the U.S. government.  At the moment both issues seem to be in the back of investor's minds.

Whistling while not working, off to another market day.


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