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.*
