Market Commentary - 3/29/2013: Encouraging economic numbers, but a discouraged consumer

  • On Wednesday, the Wall Street Journal reported that U.S. home prices rose in January from a year earlier, registering the biggest increase since the summer of 2006. Housing demand is up while the number of homes for sale has fallen to the lowest level in decades. Low mortgage rates also are helping.
  • North America's major freight railroads are in the midst of a building boom. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation's commercial transport system and a vital cog in its economic recovery. 

"We wouldn't have as many companies considering moving back to the U.S. or near-shoring," if not for rail, says Yossi Sheffi, Professor of Engineering Systems at MIT and director of its Center for Transportation and Logistics.

  • One closely watched gauge of business investment—new orders for nondefense capital goods, excluding aircraft—fell slightly in February after climbing in January, the government said Tuesday. But the longer-term picture is of businesses steadily increasing spending after a big pullback in the middle of last year. The gauge's three-month moving average has risen every month since October.

During the first quarter, the three big U.S. auto makers all said they plan to expand their production or workforces. Those investments show the industry has to keep up with increased consumer demand.

In the Business Roundtable's first-quarter 2013 economic outlook survey, released this month, chief executives' expectations for the U.S. economy in the next six months improved for the first time in four quarters.

  • U.S. consumer confidence fell in March and gave back almost all of its February rebound thanks to fiscal uncertainty, according to a report released Tuesday. Worries about federal government spending cuts–the so-called sequester–and changes in tax rates have resulted in consumers becoming less confident.

 

Dow 18,000!

Gene Epstein, a writer for Barron's (a weekly investment publication),  used information provided by Professor Jeremy Siegel of the Wharton School to calculate that the Dow Jones Industrials has 50-50 chance of hitting 18,000 in 2014.

It should be noted that prior grandiose predictions for the Dow, such as Jim Glassman’s Dow 36,000, Harry Dent’s Dow 40,000 or even Charles Kadlec's Dow 100,000, did not pan out. But Jeremy Siegel is a credible market historian whose amassed numbers on stock-market performance dating back to 1871, the earliest year for which “unimpeachable data” are available.

The numbers, were compiled with the help of Prof. Siegel's former student Jeremy Schwartz, provide the basis for projecting the likely path of the Dow.

As Mr. Epstein noted, “The 142 years of market performance reveal a fairly straightforward cyclical pattern of worse-than-average returns followed by periods of better-than-average returns. Last year, the five-year returns were in the lowest quartile of all returns for five-year cycles.”

Accordingly, he claims the Dow has a four-in-five chance to be “flat or higher by year-end 2014, and a 50-50 chance of approaching 18,000 over the same time frame.”

I find Mr. Epstein's analysis encouraging, and hopefully accurate. That being said, this type of analysis can be quite helpful in keeping investors confident and committed when facing the next market correction, which is inevitable during any long-term bull market.

Looking for a "healthy" correction

I recently read an article where the chief investment officers of various investment firms stated they would welcome a stock market correction, or as they put it, a healthy correction. Ironically, this is exactly what I've felt and noted in prior commentaries.

I realize I am sounding like a broken record, but I believe, as noted previously by other advisors, that a nice stock market pullback of 5% to 8% would be quite healthy for the longevity of this bull market. However, I have become quite frustrated and almost embarrassed waiting for it to occur. It kind of feels like standing in line with my discount coupons, ready to make my purchases, but being told that I am going to have to wait another couple of weeks before I can use them.

The following is an excerpt from Wednesday's Wall Street Journal regarding the market's current performance and how it could mirror last year's.

It’s almost that time of year again. The one where stocks start sliding and people start freaking out about the state of the market. Like the swallows coming back to Capistrano, the spring swoon that has taken place in each of the past three years is quickly approaching. Jeffrey Kleintop, chief market strategist at LPL Financial, points out the S&P 500 peaked on April 23, 2010, April 29, 2011 and April 2, 2012, before suffering losses through the ensuing summers ranging from 10% to 19%.

"On balance the indicators do not point to a significant risk of a repeat of the 10–19% spring slides in the stock market this year," he says. "However, a smaller decline of about 5% or so is far from out of the question and remains our most likely scenario."

Using technology to conquer cancer

Since I have relatives, friends and clients who've been impacted by cancer, I found this next article very interesting and hope it can lead to successful treatments for those afflicted.

The Wall Street Journal reported yesterday that a major oncology group is launching an ambitious project to collect data on the care of hundreds of thousands of cancer patients and use it to help guide treatment of other patients across the health-care system.

Cancer doctors would be able to consult the database, much like doing a Google search. They would get advice on treatment strategies that might work for their patients based on how similar patients fared in practices around the U.S.

Details of the plan were unveiled Wednesday by the American Society of Clinical Oncology (ASCO), a nonprofit professional association, and it is an   example of emerging efforts in medicine to harness the power of "Big Data" to improve care.

It's reported in the article that some 1.6 million Americans are diagnosed with cancer every year, but in more than 95% of cases, details of their treatments are locked up in medical records and file drawers or in electronic systems not connected to each other.  As a result, there is a treasure trove of information inside those cases if we simply bring them together.

This is a very challenging endeavor  since oncology groups may use different types of electronic records, and is likely to take 12 to 18 months before the first aspects of the project is made available to doctors.

ASCO is joining a Big Data movement that is well under way across medicine, including other initiatives in cancer and in cardiology. The Institute of Medicine, an independent body that advises the U.S. government on medical issues, believes such databases eventually will become a "health-care utility" to generate knowledge for treating a variety of diseases.

 

Quotes

“Don't just climb the mountain because it's there. Really think about whether that's the mountain you want to climb."

                   Kim Smith

"It's not what you go through that defines you; you can't help that. It's what you do after you've gone through it that really tests who you are."

                   Kwame Floyd

"Were it not for rough roads, you would never appreciate the superhighways"

                   Jimmy Dean

"A setback is a setup for a comeback."

                   T.D. Jakes

 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy.  A risk of loss is involved with investments in the stock and bond markets.

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