The stock market came into 2010 in rally mode on the back of the idea that economies around the globe were improving and that job growth here in the U.S. couldn’t be too far behind. Then when the worries that Greece’s sovereign debt problems would spur another credit contagion began to surface, investors put the upbeat outlook for future growth on the back burner. But now that the Greece situation appears to have a solution, traders are once again looking ahead. And if one looks in the right places, the picture looks downright rosy.
The two areas investors are focused right now are (1) job growth and (2) global economic growth. In short, if the U.S. economy can start producing jobs and if the major economies around the world can continue to move forward, then investors may be able to avoid another encounter with the big bad bears this year.
Most analysts are looking for a weak economic recovery in the U.S. Our favorite description of what is expected isn’t a “V” or a “W” but rather a square root sign, which would see the economy move higher for a while and then level off as macro headwinds relating to debt, housing, etc., kick in. And it is because of these macro concerns that a great many investors (including yours truly) have projected a return of the bears at some point in 2010.
However, we’ve seen some indicators recently that are causing us to revisit this view. We will admit that being optimistic about future growth may actually be a contrarian view at this point in the game. But before you scoff and put us in the permabull camp, we’d like you to take a look at a couple of reports with an open mind.
Job Growth On the Way
On the jobs front, there is no denying that it is going to be rough sledding for a while. However, we are starting to see signs of improvement and we believe that the economy is on the brink of job creation.
One of the indicators that leads us to this conclusion is the little known Employment Trends Index, which is produced by The Conference Board. The Employment Trends report for February showed that the index increased for the sixth straight month and in the process, reached the highest level in over a year. In addition, it is encouraging to note that the cumulative six-month gain in the Employment Trend Index was the largest since April 1994.
Another little known indicator, the SHRM Leading Indicators of National Employment Survey, is singing the same tune. The survey shows that hiring conditions are expected to get stronger in March in both the manufacturing and services sectors. The recent report shows that the employment expectation component of the survey continued to improve and now sits at its highest level since July 2007.
Couple these reports with the latest Nonfarm Payroll report, which, was above expectations, and you can plainly see that there just might be a reason or three to be just a little optimistic about the employment picture. Or at the very least, it might be a good idea for investors to consider getting out of the gloom-and-doom camp on this subject.
Global Indicators Show Strong Growth Ahead
Looking outside the U.S., the indications are that the major economies of the world are at a definitive turning point. While we apologize for the continued use of econospeak here, it is important to recognize that the Composite Leading Indicators for the 35 major countries followed have now increased for 12 straight months.
The twelve straight gains for the leading indicators is the longest such streak since May, 2006. In addition, the composite of the leading indicators for the 35 countries is now at its highest level since July 2007. Put another way, the leading indicators, when taken as a whole, have returned to where they were before the global financial crisis began.
While we recognize that we are running the risk of readers’ eyes glazing over right about now, we’ll throw out one more stat for you on this subject. The latest readings (January) of the Leading Indicators for these 35 countries were ALL above their year-ago levels, which is the first time this has occurred since early 1976.
For those of you keeping score at home, the countries with the best improvement in terms of leading indicators over the past year are: Slovak Republic, Hungary, Germany, Turkey, Russia, Italy, Brazil, Luxembourg, Finland, and Canada.
So, with signs that the U.S. economy is about to create jobs and indications that the global economy is on the mend, it is actually hard to be overly pessimistic toward the stock market from a macro perspective. Sure, there will be bumps in the road and we do expect 2010 to be an up-and-down year. But the big point of this missive is that those of you waiting anxiously for another big bear market and a retest of the lows in 2010 may be sorely disappointed.
Want an executive summary of the really important market-moving headlines?
Don’t Miss TSP Newest Weekly Reports:
-
Click Here to Sign Up For the ETF Leaders Report
-
Click Here to Sign Up For the ETF Big Money Flow Report
- Click Here to Sign Up For TSP Stock in the Spotlight Report
S&P 500 - Intraday
S&P 500 Last 3 Months -
S&P 500 Last 12 Months
S&P 500 Last 5 Years
