February 26 2014
Behind the dark clouds of volatile markets there appears to be a silver lining. That may be hard to believe when so many are focused on whether economic weakness is due to bad weather or, well, economic weakness, but here are a few of the signs that things may take a turn for the better:
- Business climate: On February 20, The Economist/FT Global Business Barometer, which surveys 1,500 business leaders around the world, found more than one-half of them expect the global business climate to improve during the next six months and more than one-third plan to increase capital investment in the coming year. A slight majority believe America will have a greater influence on their regional growth than China.
- Consumer confidence: Consumer confidence climbed for the second month in January 2014. The Director of The Conference Board Consumer Confidence Index® said, “Consumers’ assessment of the present situation continues to improve, with both business conditions and the job market rated more favorably. Looking ahead six months, consumers expect the economy and their earnings to improve, but were somewhat mixed regarding the outlook for jobs. All in all, confidence appears to be back on track and rising expectations suggest the economy may pick up some momentum in the months ahead.”
- Cash-rich companies: Corporate America is sitting on a lot of cash – about 91 weeks’ worth of net income, according to Barron’s. It has been using that cash primarily for stock buybacks, but could use it for other things. An economist quoted in Barron’s said, “The purpose of the capital markets is to fund growth… it’s difficult to call this de-equitization an economic equilibrium: Public companies should not make money just to buy back stock.”
Of course, positive prospects don’t mean everything is coming up roses (especially not in this weather). Consider one of the effects of stock buybacks which is there is a lot less stock in our stock markets than there used to be. As Barron’s pointed out, “The Wilshire 5000 may have seen its list of components shrink by half since 1998, but its total market cap has doubled from $11.7 trillion to $22.5 trillion in that span. Unless you’re a government statistician, you just might call that inflation.” Oh! Inflation. That’s something we may need to think more about soon.
- Data as of 2/21/141- WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)-0.001-0.00722.2%0.11819.8%4.9%
- 10-year Treasury Note (Yield Only)2.7N/A2.03.52.84.1
- Gold (per ounce) 0.310.1-16.1-22.214.171.124
- DJ-UBS Commodity Index2.36.3-2.3-6.25.4-0.6
- DJ Equity All REIT TR Index0.5 7.2 5.69.928.68.8