Fisher Investments Editorial Staff
Corporate Earnings, Investor Sentiment, Trade, US Economy

A Round of Thanks

By, 11/26/2010

Story Highlights:

  • We at MarketMinder would like to highlight a few things we are thankful for this year:
    • Stocks' performance
    • Gridlocked Congress
    • Growing Emerging Markets
    • Corporate cash stockpiles and M&A activity
    • Free trade
    • Dour economic sentiment
    • Corporate earnings
    • Inflation remains tame and deflation isn't evident
    • Labor market improvements 



Aside from giving thanks for family, friends, a soft couch, and plenty of gravy, we at MarketMinder would like to highlight a few other things (in no particular order) we are thankful for this year: 

  • Stocks' performance: Since the March 9, 2009 bear market low, the MSCI World Index has rebounded approximately 85%. Hardly anyone at the time would have guessed the market was headed for any direction other than down, let alone for a spectacular, historic rise. 
  • Gridlocked Congress: The November election moved Congress more into serious gridlock territory—which is normal, and very bullish, following US midterms. Even better, the entire world has gotten more gridlocked. Markets typically hate legislative change, and the waning threat globally should provide an additional bullish boost.
  • Growing Emerging Markets: EMs led the global economic recovery and look primed for continued rapid growth. These countries not only help provide the world with cheap imported goods, but a growing middle class in these regions is increasingly becoming an important end market for exports as well. Additionally, infrastructure development in these areas help drive demand for a number of commodities, machines, technologies, and investments. 
  • Corporate cash stockpiles and M&A activity: Companies were conservative during the recession—as is normal—and have amassed $2 trillion in corporate cash on balance sheets. But we doubt they're planning on simply admiring the cash from afar. Given the current low-interest rate lending environment and the fact many companies are reporting a better outlook, that cash is likely to be strategically employed. Look no further than the increased M&A activity lately. M&A can help a company not only gain competitive advantage or market share, both potentially boosting future profits, but cash-funded M&As reduce stock supply, helping to boost stock prices. 
  • Free trade: Global trade activity continues to trend up—something we like to see. Though pockets of protectionism appear here and there, countries are generally pursuing more free-trade agreements. This year, we've seen the successful signing of trade pacts between China and Taiwan, EU and South Korea, EU and Central America, China and Costa Rica, New Zealand and Hong Kong, India and South Korea, and Singapore and Costa Rica—just to name a few
  • Dour economic sentiment: Economic doubts are especially pervasive following recessions. US GDP has grown for five straight quarters (Q3 2009 through Q3 2010), and yet, rather than cheering the positive data and what it could portend for future growth, pessimism still reigns. Look no further than our own Fed chairman. However, when actual economic fundamentals prove the dour sentiment unwarranted, stocks could get a boost as folks feel more confident. 
  • Corporate earnings: US corporate earnings have soundly beat expectations for four straight quarters (Q4 2009 through Q3 2010). This ties into our previous point about sentiment remaining dour. News about how well companies overall are doing is oft lost among headlines pounding problems like high unemployment, housing, slow recovery, etc. Yet corporate earnings are a very important signal of economic health and even a forward-looking economic driver. Profitable companies can consider expansion, upgrading existing equipment or technologies, pursuing additional investments, etc. All these could stoke business activity and demand. And more hiring! All good things. 
  • Inflation remains tame and deflation isn't evident. The dual fears of rampant inflation and dreadful deflation have traded top spots on the podium for some time. Yet CPI data shows neither have taken a strong hold. Overall prices have ticked up very slowly over the last quarters, leaving room for continued easy monetary policy, creating a positive lending environment for banks and companies. Increased inflation down the road is indeed a risk, but since deflation was just recently the much greater risk, we'll take some mildly increasing prices for now. 
  • Labor market improvements. History shows unemployment always improves more slowly than the overall economy following recession. This time is proving no different. But patience seems to be paying off as recent trends show a turn for the better rather than the worse. If so, this could mean the last residues of recession ills could be clearing, suggesting the economy is further along in growth mode—not just recovery. 

Happy Thanksgiving!    


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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