Sensible Investing

According to this chart from US Department of Labor, monthly job losses continue to trend down.  If this continues, then overall job creation is likely by the end of the year.

It looks like this won’t be a jobless recovery.

A couple of days ago, the Dow Jones crossed the 10,000 mark.  Is this a cause for celebration?  Hardly.  According to Wall Street Journal, it was the 25th time the index crossed that milestone, the first time being in 1999.  So, despite the “meteoric” 50% plus gain of the Dow since March lows, we are still at the levels of 10 years ago.  By historical measures, markets gain about 10% annually, which translates to 250% gain in 10 years.  So this last decade has been quite horrible for the markets, as I am sure you realize.

This has happened before, in the thirties and then again in the seventies.  The last time, the markets were stagnant from 1966 to 1982, with Dow Jones bouncing around another round milestone, 1000.  There is no way of knowing how long the current stagnation will last, but the markets will revert to historical growth rates, as they have always done in the past.

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Similarly to the previous quarter, this time around the earnings season had a great start.   Bellwethers Alcoa, Intel, and JP Morgan all exceeded expectation by a wide margin.  Take Intel, for example: not only profits were better than expected, but revenues as well.  This is quite important as many analysts were concerned that earnings were driven by cost cutting only.  Now we are seeing evidence that sales are growing as well.

In related news, retail sales improved also, as discussed in this article.  Consumer spending (along with high unemployment), have been dark spots in this recovery for quite some time.   Now, good news on consumer demand will greatly help to boost already increased confidence.

We received another bit of good news for the housing market.  For the first time in 3 years, the housing prices based on 20-city index actually increased, compared to the previous month.  While they are still down compared to one year ago, this is certainly a most welcome development as far as the overall economy is concerned.

We are finally hearing some consistently good news in the housing market.  According to a recent report, new home sales rose by 11% in June, much more than expected.  At the same time, inventory of new homes on the market dropped to 8.8 month supply, or 281,000 units, which is below “normal” level of 300,000.  Some economists think that the housing sector will stop being a drag on the overall economy and will actually add to GDP as soon as in the end of this year.

For more information, take a look at this and this article.

As always, the flood of earnings reports sets the tone for the market, and so far this tone has been very positive.  Overwhelmingly, companies are beating earnings estimates.  Just take a look at the weekly summary at briefing.com.  It shows all earnings reports this week.  Green color is used to show positive surprises, and red is for negative ones.  As you can see, green color dominates, and this has been the reason for the market rally over the last couple of weeks.