Bernanke's assurances over the last two days have eased
concerns about the Fed's policy, helping push stocks back on the
upward trajectory. This goes on to reconfirm for us how central
the Fed's stance is to the stock market's momentum. We saw the
rally wobble as doubts about the Fed's QE program emerged, but
the momentum appears to have been restored following Bernanke's
soothing words, even though fiscal policy is heading towards the
onset of austerity. This morning's positive Jobless Claims and
GDP reports should add to the overall favorable momentum.
The GDP revision was a bit of a disappointment, with the
'headline' growth rate moving back in the positive territory, but
the report's internals weakening a bit. But the Jobless Claims
data came in significantly better than expected, potentially
indicating a positive jobs number in next week's non-farm payroll
report. Initial claims were down 22K to 344K from 366K. The
4-week average dropped from 362K to 355K, lower than the level at
the end of 2012. We wouldn't get the February non-farm payroll
data till next week, but the numbers will likely be distorted by
the East Coast snow storms. The trend has been in the 150K to
160K monthly pace over the last couple of months and the recent
movement Jobless Claims data indicates that we could potentially
a better number in non-farm payrolls next week.
The government's advanced read on fourth quarter GDP a month
back came as a shocker when it showed the U.S. economy shrinking
by -0.1%. Today's second read on fourth quarter GDP reversed that
- showing +0.1% growth vs. expectations of +0.5%. The internals
were a bit on the weaker side, but not by enough to significantly
change the overall story about the U.S. economy. Consumer
spending went down a bit, while business spending went up.
Business inventories and government spending, the major areas
that gave us the negative growth rate a month back, turned out to
be a tad bit weaker on the second look. The bottom line on the
GDP front is that the private sector of the U.S. economy is
expanding at a roughly 2% annualized pace, offset by weakness on
the government side. With government austerity expected to become
the norm going forward with the sequester getting underway, we
should perhaps get used this trend for the coming quarters even
though the 'headline' growth rate will likely be better than what
we saw in the fourth quarter.
With the Fed no longer a burning concern, the sequester
essentially a non issue, and the internals of the economy good
enough (not great, but not bad either), the market has all that
it needs to make another go at new all-time highs. We will
probably have to wait for tomorrow's ISM and next week's jobs
reports before we can expect a major upward thrust in the market.
But this market has surprised in the past and could very well do
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