Don’s Outlook 3/12/10
The ongoing rally from last year’s lows marked its one-year anniversary this week, and several indices reached new highs to celebrate. The S&P 500 Index added another one percent gain through Thursday, which means that it is up nearly nine percent from the February low. Small-cap stocks have surprised by outperforming recently, bucking recent surveys that depict faltering confidence among small-business owners. The Dow Jones Industrial Average is one index that has yet to rally to a new 2010 high but doing so would be a bullish conformation, given that the closely watched transportation sector has already reached higher levels.
Recent indicators for both labor and manufacturing are painting improving pictures, even if the positive spin requires extrapolation. As I mentioned last week, the latest manufacturing surveys have either improved or remain in expansionary territory. Employment, on the other hand, has been improving more gingerly. However, investors looked beyond February’s results to deduce a positive March and the expectation that sustainable net-job creation is nearly upon us.
The reason for this is that the Bureau of Labor Statistics (BLS) reported a better-than-expected loss of 36,000 nonfarm jobs last week. This is in spite of the fact that the U.S. incurred the largest weather-related impact ever recorded for the month of February. Due to many parts of the country seeing record snowfall, the BLS estimated that 1.03 million people were unable to work last month; this is more than three times the average for a typical February. By reducing the payroll counts in a similar fashion, it is possible that February could have instead recorded a solidly positive jobs-growth number. In addition, the Manpower survey, which was released on Tuesday, showed increasing stability among the 18,000 firms that it surveyed. Fewer firms planned to cut their payrolls and more planned to add to their ranks. The majority of companies, however, expected no change in their hiring plans.
Today, retail sales numbers surprised to the upside by climbing 0.3 percent. This was the largest jump since November, and the results build upon a strong January to paint a better consumer picture as 2010 progresses. Weakness was expected due to the severity of the snowstorms last month, but the gains outside of auto sales were widespread.
One of the chief elements of uncertainty that led to the global correction earlier this quarter was the sovereign debt concerns facing Greece and other smaller European nations. Some of the dust has settled on this issue, paving the way for equity and credit markets to stabilize. The successful issuance of Greek bonds last week provided some assurance that the short-term risk of default is limited, and the affect on euro zone bond yields has also been minimal, indicating the risk of contagion remains theoretical or remote at this point. Although European equities have suffered so far in 2010, this has more to do with lagging economic performance than sovereign debt concerns. However, a report out on Friday showed that industrial production spiked by 1.7 percent in January, which may ease concerns that the recovery is stalling there.
