Daily Investment Interpretations
July 25, 2010
2010-7-25: U.S. economy seeing gradual
recovery: Geithner, and Watch Geithner on Meet the
Press, and U.S. stocks upbeat on earnings, cautious on data.
In discussing whether or not the recovery is still with us, we might want to note that in order to have a correction, professional money managers must be convinced that the economy and the markets are going to tank. Similarly, to generate rising markets, the pros have to be convinced that things are going to improve from here. However, it had been anticipated that the economy would slow down once the stimulus effects ran out and the restocking of inventory was complete. A retrenchment of expectations should have come as no surprise.
Stocks have moved above their 50-day (intermediate-term) moving averages, but their 200-day (long-term) MA's are still moving down. The 200-day moving average for the S&P 500 lies at about 1,120, or about 18 points above where it closed last Friday.
As this article shows, Market will 'drift for the rest of summer', more than ¾-ths of the S&P 500companies that have reported in so far have topped earnings estimates, and ⅔-rds have beaten revenue expectations. However, three companies have lowered third quarter estimates for every one that has raised them. (The end of this coming week should give a better picture of what second-quarter earnings have been.) Of course, second-quarter earnings are a reflection of the past, including the effects of the fiscal stimulus and the restocking of inventories. Third-quarter earnings should reflect a more-normal set of conditions.
Then there's this: Stocks on brink of breakout. And Treasury Secretary Geithner is saying, No new recession, let tax cuts die: Geithner. Of course, Secretary Geithner had better convince the public that the recovery is on track or the Democrats will be toast in November.
This article, With Stocks, It's Not the Economy, makes the interesting case that because of globalization, the S&P 500 companies now derive about ½ of their revenues from outside the United States. Consequently, the domestic economy is no longer tied to the stock markets the way it was in the past. Perhaps Paul Krugman could be correct about the faltering U. S. economy, and at the same time, the U. S. stock market could rise because of greater prosperity elsewhere. Martin Wolf is echoing the same refrain and expressing the same frustrations as Paul Krugman in this article: The political genius of supply-side economics.
The article, Obama, Republicans spar over jobs, contains the interesting claim that President Obama stated last year that his fiscal stimulus program would generate 1,000,000 more jobs in the near term.
As China grows, massive hurdles loom
The markets are up slightly tonight.