U.S. stocks rallied again on Friday, that’s five days in a row that now completely erases the losses of the previous two weeks, as Wall Street analysts’ bandwagon mentality rolls on as usual. The Dow Average closed at it highest level in a year; the S&P 500 just barely shy of that mark.
Another day of analyst recommendations, this time suggesting investors buy tech and health-care stocks, pushed the broad market higher. This is about the third time in five sessions that buy recommendations have spurred a rally. Earlier in the week it was recommendations to buy industrial and basic material shares that helped to get the week started. These two sectors have jumped nearly 80% since the March 9 lows.
As we discussed at the beginning of the year, industrial and tech shares present the greatest opportunity over the next decade and commodity-related basic material shares are the place to be in the shorter-term as the dollar gets hammered. Back then you couldn’t find analysts’ buy recommendations, but now that the market has surged 60%, and some of these sectors even more, they abound. This is quite typical. But those just getting in should beware, especially with regard to the sectors that have run up the most; they are likely to pull back substantially before resuming an upward trajectory over the longer term.
Advancers beat decliners by a two-to-one margin on the NYSE Composite. Volume was very weak, as less than one billion shares traded on the NYSE Composite – roughly 27% lower than the six-month average.
Market Activity for October 9, 2009
Trade Figures
The Commerce Department reported that the U.S. trade deficit narrowed in August as exports rose (in nominal terms) and oil, consumer goods and industrial supplies weighed on imports. The gap fell 3.6% to $30.7 billion ($2.3 billion tighter than forecasted) from a revised $31.9 billion for July. The trade deficit hit its widest level in August 2006 at -$67.7 billion.
The trade deficit is generally a vey good indication of U.S growth. When growth is strong, and thus consumer and business activity is on a roll, imports soar and the deficit widens. When growth is weak, and consumer and business spending retrenches, the gap narrows. The wides on the trade deficit were also caused by a Federal Reserve policy that encouraged consumers to take on more debt (and high oil prices also had an effect, also a result of easy Fed policy as it had a weakening effect on the dollar). But in general, even though trade deficits are often vilified, it does reflect what is going on in the economy.
The rise in exports, although a mild rise of just 0.2%, was helped by another big month for automotive deliveries and to a smaller extent industrial supplies and telecom equipment. Computer accessories, a huge decline in civilian aircraft deliveries and consumer goods weighed on the figure.
Imports were disappointing, falling 0.6% in August after two months of increase that gave some the incorrect sense that the U.S. consumer was making a comeback. It was reported that a large decline in oil imports (a decline that was actually worse than the number relays since petroleum prices rose during the month) was the cause of the drop in imports, but this isn’t the entire story. Significant declines in consumer goods and industrial supplies also weighed meaningfully on imports.
When we adjust for prices, both sides of the trade numbers fell in August. Real exports fell 1.5% and real imports declined 1.9%. No matter though for GDP as that needs to occur for the trade figures to boost the reading is for exports to fall less than the degree to which imports do. The inflation-adjusted trade gap fell to $37.70 billion from $38.75 billion in July.
All in all, what should be taken from the reading is that trade remains imperiled. Export orders do not suggest (although this data is a bit outdated as it is for August) global growth is back in the swing of things and the import numbers continue to paint the picture that businesses remain on the sidelines and the consumer is still in balance-sheet repair mode – hardly a surprise though.
The Commodity Trade
Following Australia’s better-than-expected jobs report on Thursday, 40,000 jobs were added in September and the unemployment rate ticked down to 5.7% (30-year average is 7.8%), the Canadian government reported Friday morning that payrolls rose 30,600 last month after a 27,100 pick up in August. The Canadian jobless rate fell 0.3% to 8.6% (perfectly in line with the 30-year average). In contrast, our jobless rate remains 3.6 percentage points above the 30-year average of 6.2%, and it ain’t coming down anytime real soon – it is on its way to test the post-WWII high of 10.8%.
The rise in commodity prices -- fostered by a positioning among investors and foreign governments to protect against a declining dollar and China’s stimulus plans that are focused upon building factories and roads like mad – has allowed the basic material/natural resource-rich regions like Canada and Australia to perform relatively well.
(The U.S. is rich in natural resources as well, but in the name of “environmentalism,” we place huge restrictions on our production of these resources. This will eventually change as lower growth will trump misplaced priorities over time – it won’t take more than a couple years of this and citizens will say enough is enough and the focus will turn to augmenting growth again. But we erred big time in failing to exploit huge technological improvements within the energy sector. The focus should have been to create high-paying manufacturing jobs in the natural gas/oil exploration, coal and nuclear arenas. The opportunity remains, but it appears priorities will remain misplaced for some time before we get things right.)
We have been in front of this trade with our push to commodity-related stocks and an increased weighting to the Australian market within the international asset class. For people who are late to the game in this trade, I would caution against a major push here now at these levels. But for those who have been here a while, buying at very low prices and valuations at the beginning for the year, it’s working out well and the actual figures out of Canada and Australia support the view.
Have a great day!
Brent Vondera, Senior Analyst
Another day of analyst recommendations, this time suggesting investors buy tech and health-care stocks, pushed the broad market higher. This is about the third time in five sessions that buy recommendations have spurred a rally. Earlier in the week it was recommendations to buy industrial and basic material shares that helped to get the week started. These two sectors have jumped nearly 80% since the March 9 lows.
As we discussed at the beginning of the year, industrial and tech shares present the greatest opportunity over the next decade and commodity-related basic material shares are the place to be in the shorter-term as the dollar gets hammered. Back then you couldn’t find analysts’ buy recommendations, but now that the market has surged 60%, and some of these sectors even more, they abound. This is quite typical. But those just getting in should beware, especially with regard to the sectors that have run up the most; they are likely to pull back substantially before resuming an upward trajectory over the longer term.
Advancers beat decliners by a two-to-one margin on the NYSE Composite. Volume was very weak, as less than one billion shares traded on the NYSE Composite – roughly 27% lower than the six-month average.
Market Activity for October 9, 2009
Trade FiguresThe Commerce Department reported that the U.S. trade deficit narrowed in August as exports rose (in nominal terms) and oil, consumer goods and industrial supplies weighed on imports. The gap fell 3.6% to $30.7 billion ($2.3 billion tighter than forecasted) from a revised $31.9 billion for July. The trade deficit hit its widest level in August 2006 at -$67.7 billion.
The trade deficit is generally a vey good indication of U.S growth. When growth is strong, and thus consumer and business activity is on a roll, imports soar and the deficit widens. When growth is weak, and consumer and business spending retrenches, the gap narrows. The wides on the trade deficit were also caused by a Federal Reserve policy that encouraged consumers to take on more debt (and high oil prices also had an effect, also a result of easy Fed policy as it had a weakening effect on the dollar). But in general, even though trade deficits are often vilified, it does reflect what is going on in the economy.
The rise in exports, although a mild rise of just 0.2%, was helped by another big month for automotive deliveries and to a smaller extent industrial supplies and telecom equipment. Computer accessories, a huge decline in civilian aircraft deliveries and consumer goods weighed on the figure.
Imports were disappointing, falling 0.6% in August after two months of increase that gave some the incorrect sense that the U.S. consumer was making a comeback. It was reported that a large decline in oil imports (a decline that was actually worse than the number relays since petroleum prices rose during the month) was the cause of the drop in imports, but this isn’t the entire story. Significant declines in consumer goods and industrial supplies also weighed meaningfully on imports.
When we adjust for prices, both sides of the trade numbers fell in August. Real exports fell 1.5% and real imports declined 1.9%. No matter though for GDP as that needs to occur for the trade figures to boost the reading is for exports to fall less than the degree to which imports do. The inflation-adjusted trade gap fell to $37.70 billion from $38.75 billion in July.
All in all, what should be taken from the reading is that trade remains imperiled. Export orders do not suggest (although this data is a bit outdated as it is for August) global growth is back in the swing of things and the import numbers continue to paint the picture that businesses remain on the sidelines and the consumer is still in balance-sheet repair mode – hardly a surprise though.
The Commodity Trade
Following Australia’s better-than-expected jobs report on Thursday, 40,000 jobs were added in September and the unemployment rate ticked down to 5.7% (30-year average is 7.8%), the Canadian government reported Friday morning that payrolls rose 30,600 last month after a 27,100 pick up in August. The Canadian jobless rate fell 0.3% to 8.6% (perfectly in line with the 30-year average). In contrast, our jobless rate remains 3.6 percentage points above the 30-year average of 6.2%, and it ain’t coming down anytime real soon – it is on its way to test the post-WWII high of 10.8%.
The rise in commodity prices -- fostered by a positioning among investors and foreign governments to protect against a declining dollar and China’s stimulus plans that are focused upon building factories and roads like mad – has allowed the basic material/natural resource-rich regions like Canada and Australia to perform relatively well.
(The U.S. is rich in natural resources as well, but in the name of “environmentalism,” we place huge restrictions on our production of these resources. This will eventually change as lower growth will trump misplaced priorities over time – it won’t take more than a couple years of this and citizens will say enough is enough and the focus will turn to augmenting growth again. But we erred big time in failing to exploit huge technological improvements within the energy sector. The focus should have been to create high-paying manufacturing jobs in the natural gas/oil exploration, coal and nuclear arenas. The opportunity remains, but it appears priorities will remain misplaced for some time before we get things right.)
We have been in front of this trade with our push to commodity-related stocks and an increased weighting to the Australian market within the international asset class. For people who are late to the game in this trade, I would caution against a major push here now at these levels. But for those who have been here a while, buying at very low prices and valuations at the beginning for the year, it’s working out well and the actual figures out of Canada and Australia support the view.
Have a great day!
Brent Vondera, Senior Analyst
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