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25-Nov-09
Plenty to be Thankful For
As we complete a holiday-shortened, data-intensive week, investors have a lot to be thankful for. Over the prior three days, data has been bullish as key economic indicators have either met or surpassed expectations.
Existing home sales bettered their forecast and increased 10.1% month over month. Some will argue that the spike was artificially inflated by tax incentives, but with existing home sales having surpassed 6 million for the first time since March 2007, the trend is clearly higher. As new home sales echoed this strength, we may finally be seeing stability in the housing market that will point to sustained economic growth.
On the negative side, Case Shiller home prices, durable goods orders, and GDP all showed declines, but these drops were in line with forecasts so they provided little solace to the bears.
As for the consumer, confidence continues improving, and the employment picture is looking better with initial jobless claims dropping much more than forecast to 466,000. This claims number is the lowest in over a year and offers the first break in the psychologically painful 500,000 level.
Combine all the various data points and the economy appears to be changing course, with the two main culprits of the bust-housing and employment-showing signs of life.
Knowing markets can act in unpredictable manners, it is encouraging to see stocks rally on such strength. When good news delivers rallies, it indicates the markets are acting rationally, and in such an environment our job of allocating capital become easier.
Assessing this surprising economic strength, resilient market, excessive liquidity, and general investor pessimism, we have in place the components of a massive rally. Last week I established a price target on the Dow Jones Industrial Average (Dow) of 11,300 and remain confident in that prediction. The stock market continues climbing a wall of worry as investors doubt the sustainability of a liquidity-fueled rally in overpriced stocks. However, as prices continue higher, pressure to chase prices up the ladder increases on those who are underinvested. Critiquing the merits of this rally may make for interesting discussions over the coming holiday season, but those who embrace the move and position appropriately will have the most to be thankful for.
Posted at 19:51 in Market Report | Permalink | Top
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