We are not experiencing a bear market. There, I said it, and while it is my opinion it has not been arrived at in simplicity. Rather only with the understanding that the future economy is only as complicated as the clues that are provided to us, with the most obvious, jobs growth, consumer behavior and inflation, most statistical data is suggesting positive growth expectations are not unrealistic to forecast. Not necessarily strong growth either, but maybe on average, more of the same. So what are my reasons for being constructive? Here goes:
My Employment Reason – Combines 3 pieces that I feel have to be viewed together. Using last month’s Unemployment statistics we found out that job growth was around 280k new jobs, a very good amount by most historical measure. The number was augmented by adjustments to previous month’s numbers resulting in higher growth for them as well. As good as the number was the Civilian Unemployment rate for May was 5.5%, which was at face value a good low number. But the nagging truth about participation in the workforce, which could be higher or lower thereby rendering the data incomplete, cannot be ignored. Lately the participation rate has hovered at a consistent rate (approximately 63%) that while not the best is the equivalent of no news on the matter, and I hope we all can agree that sometimes no news is good news.
My Consumer Reason – When watching the consumer, individual statistics really tell the story. But I prefer to also look at an average, an eight month average to be exact, to find evidence of momentum. Consumer Sentiment as measured by the University of Michigan came in at 93.6 versus an 8 month average of 85.3. Retail Sales data last came in at 1.2% higher than the previous month and versus an 8 month average of .4%. While these numbers can change as quickly as the tastes of the general consumer, they suggest the potential for momentum, and with any upcoming signs of wage growth, that’s good enough for me right now.
My Productivity, Inflation and General Economic Reasons – Are based on Producer and Consumer inflation, which means, how much costs rise when making stuff versus selling stuff. Here we’ve seen, contrary to expectations virtually no inflation growth over 2%, which would be needed to get the Treasury‘s attention. This is good, except for the fact that the world economy is still dragging and even with some glimmer of energy, inflation is not likely to rise very much in the near future. That said, Productivity trends, as measured by Manufacturing statistics and Industrial Production statistics have also been dragging domestically, and that takes some of glow off of my forecast.
So where does that leave us? With consumers armed with cash coming from more employment and better wages, action has to take place, at which time the productivity machine should start its engines. And while asking for inflation might be too premature, my forecast is only modestly optimistic, the overall influence on stock prices should be equally modest and positive. That could be the recipe for some uncertainty and the volatility that feeds on it, which is what the markets are experiencing right now. So I choose to let it be, it’s not unexpected and it’s also not a bear market.*