Market and Data Continue Positive Trend
By Gus Krafve
September 8th, 2009
In the third week of August, Central bankers gathered at the Federal Reserve Bank of Kansas City’s annual economic policy symposium in Jackson Hole and confirmed the view that the global economy is set to emerge from recession. We wrote about the end of the recession likely occurring this summer in our Market Insights column two months ago, and since then, we have continued to see the data support that view.
New home sales rose 9.6% in July, the biggest gain since February 2005, to a 433,000 annual rate. It was the fourth consecutive gain and the biggest two-month increase since March 1994. New home inventories fell 11.8% to 271,000, the fewest since March 1993. We are now six months into the housing recovery, in terms of sales. Home prices, as measured by the S&P Case-Shiller index, rose 1.4% in June, the second straight monthly rise and the first quarter-to-quarter gain since 2006. Prices typically lag the rebound in sales.
Durable goods orders rose for the third time in four months in July, gaining 4.9%. It is the largest increase in two years and was driven by an 18.4% rebound in transportation equipment. Computers and electronic products rose for the third straight month, with communications equipment gaining 9.4%.
Other indicators that point to the recession’s end are as follows:
• Manufacturing in the US grew for the first time since January 2008 according to the latest ISM Manufacturing reading of 52.9
• Consumer sentiment continues to trend higher
• 85% of the leading economic indicators have risen over the past 6 months
• Current 3rd quarter GDP estimates now generally range from 1-4% growth
As we look at the returns, this year is shaping up to be a good one for nearly every asset class. The flight to quality trade into US Government Treasury bonds continues to unwind. Investor’s continue to bid up stocks, commodities, corporate bonds and municipal bonds while using more conservative Government bonds as a source of funds.
Year-to-date returns of the major indexes for the month-ended August are:
• S&P 500 Total Return +14.97%
• S&P MidCap 400 Total Return +23.10%
• S&P SmallCap 600 Total Return +13.61%
• NASDAQ Composite + 27.40%
• EAFE Total Return +18.14%
• Barclay’s Capital Agency Bonds +0.96%
• Barclay’s Capital Corporate Bonds +15.07%
• Barclay’s Capital High-Yield Bonds +40.95%
• Barclay’s Capital Treasury Bonds Total Return -3.05%
• CRB Continuous Commodity Index +14.31%
Certainly, there are still uncertainties surrounding the health of the banking system and the weak US consumer. Thus far, corporate profits and the economic numbers have surprised on the upside and the trend is likely to be a friend of the bulls.
