Put a Little Spring in Your Step!
Spring Fever. Some define it as the feeling of restlessness experienced by many people at the onset of Spring. We define it as both a blessing and a curse. Why? Because although it lifts our spirits, it also invites risky behavior.
Spring is a prolog for Summer, and many people think theU.S.economy will wilt in the Summer heat. TheU.S.stock market had its best start in 14 years. The euphoric rocketing of stock prices suggests that a pause is needed, and we won’t be surprised with a bit of a correction, though not convinced one is imminent. Stock market corrections are a healthy filtering process within bull markets; they clear-out excesses and keep stock prices real. Our Spring/Summer optimism is based on three economic indicators. These are gauges we watch to confirm that theU.S.economy will continue to perform well heading into Summer.
1: INITIAL UNEMPLOYMENT CLAIMS
These claims do not suggest economic slowdown. In fact, statistics reflect proliferating perceptions that the labor market is making a solid comeback. For good reason, improving job numbers are positive for stocks. New claims were running around 400,000 last year. We expect new claims to drop to 300,000 by year-end, an impressive 25% improvement. Though still high, the unemployment rate is at three-year lows.
2: CONSUMER COMFORT
Despite rising gas prices at the pump, consumer confidence levels continue to rise. Mild weather across theU.S.brought an early Spring shopping season. This “shop until you drop” attitude will be further aided by a late Easter. (It’s two weeks later than it was last year.) This translates into more pedal-pushers, bonnets, open-toe shoes and dresses, dresses, dresses. Spring fever is boosting consumer spending sooner than usual. High gas prices remain the biggest risk here.
3: LEADING ECONOMIC INDICATORS
Ten different indexes are now showing decisive signs of improvement. We identified two of them above. A third one is the Stock Market itself. Why? Because it has always been a forward-looking indicator of the economy, both good and bad. TheU.S.economy should continue to perform surprisingly well in coming months. Further expansion should also push bond yields higher and cause more investors to shift funds from bonds to equities. (See page two for our analysis of the bond market!)