Entries by Tom 2

The Economy: A Look Back and What’s Ahead (1.21.14)

/in /by

Last Week

Economic data last week was almost universally better than expected. This gave the market a needed “confidence boost” about the current state and trajectory of the economy following the disappointing December jobs report.

First, with regard to the current state of the economy, the first two January economic data points, Empire State manufacturing and Philly Fed, both beat expectations.  Importantly, given the context of the jobs report, the employment indices in both reports saw strong gains from December to January (Philly jumped 5.6 points to 10.0 while Empire jumped from zero to 12).

Turning to the trajectory of the economy, several pieces of December data helped remind the market that we are seeing economic growth accelerate.
Read More

The Goldman Sachs Research Note Wasn’t Really Bearish

/in /by

One of the “reasons” for Monday’s sell-off was a “bearish” research note on stocks from Goldman Sachs.  While that did make for attention-grabbing headlines, the research note itself wasn’t really bearish.  After all, it’s hard to be bearish on stocks when you reiterate a year-end price target in the S&P 500 of 1,900, more than 3% higher from here.

But, the note was cautious, which is what we said in Monday’s Report, as that was the prevailing mood in the market on the eve of earnings season.

In particular, Goldman’s Chief Strategist David Kostin pointed out the well-known fact that stocks aren’t cheap on a forward P/E basis (15.1X 120 ’14 EPS).  But, rather than imply the market is wildly overvalued, he instead took issue with the fact that there seems to be a consensus expectation for multiple expansion to simply lead the market higher again in 2014, as it did in 2013.
Read More

Why Friday’s Jobs Report Puts Fed Policy at Risk (It’s Not Why You Think).

/in /by

Economic data last week was disappointing, highlighted by the big jobs report miss on Friday.  But, the right way to look at Friday’s big miss (74K vs. estimates of 205K) is more “confusing” than outright “negative.”

The miss was so big, and so divergent from all other recent economic data and employment indicators, that the market (rightly or not) is dismissing the jobs report as a statistical anomaly based on weather, seasonality, holiday hiring, etc.
Read More

The Economy: A Look Back and What’s Ahead (1.13.14)

/in /by

This Week

Economic data last week was disappointing, highlighted by the big jobs report miss on Friday.  But, the important takeaway is that the soft economic data did not change the general expectation that GDP in 2014 should be 3% or higher.

Starting with the jobs report, the right way to look at Friday’s big miss (74K vs. estimates of 205K) is more confusing than outright negative.  The miss was so big, and so divergent from all other recent economic data and employment indicators, that the market (rightly or not) is dismissing the jobs report as a statistical anomaly based on weather, seasonality, holiday hiring, etc.

The bulls will say that’s the right way to look at the number, while the bears will view it as a classic example of investors “whistling past the graveyard” and simply dismissing numbers they don’t like.

Time will tell who is right, and we’ll get a good idea over the next few weeks as more data comes out, but for now the benefit of the doubt goes with the bulls. (The number is so far off that it makes more sense on the surface that this is an anomaly.)
Read More