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US economy weakening?

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by Peter Switzer

After stocks had a rough day at the office, in the final hour the major US indices ended up positive, which was a pretty good effort considering some unsettling news on the economy has started to worry some investors.

Remember one of the underlying bets going on in investors’ and traders’ minds is the strength of an improving US economy versus the crisis of confidence out of Europe. At the moment, I would still argue that the ‘goods’ from the US are outweighing the ‘bads’ from Europe, however there are a few slightly worrying signs from the American economy.

Conflicting signals

Overnight, it was reported jobless claims rose by 12,000 last week. Then the Philly Fed report showed its measure for manufacturing fell from 21.4 to eight — that’s a big fall. That was the worst reading for 10 months, reports asserted.

But against that, the latest take on leading indicators actually rose 0.4 per cent.

That said, the softer manufacturing follows a negative outlook statement by FedEx yesterday and this is regarded as a good bellweather business for the US economy. This confession took six per cent of the company’s share price and spooked the market.

On the other hand, the industrial production number this week was good and so, as you can see, there are conflicting signals out there. What’s new with economics and investing?

In its report to the market, FedEx expected GDP growth of 3.2 per cent in the US while global GDP growth was tipped to be 3.1 per cent. It also saw a rise in industrial production of five per cent increase for the Yanks.

And while these readings might be below general market expectations, they still are not wrist-cuttingly bad and you to recall that economists making forecasts are often wrong!

The best news this week for me was that the euro went higher and the Spanish bond auctions of long-term bonds — I’m talking 10- and 30-year bonds — went really well. Now that would have seemed inconceivable even two weeks ago.

Christmas on the way

Right now, Americans are pre-occupied by the grilling BP’s boss, Tony Haywood, is copping from US politicians on Capitol Hill over the disastrous oil leak in the Gulf of Mexico.

This has distracted the market a bit but tomorrow they will encounter a quadruple witching hour, which can sometimes create some ‘scary’ market reactions.

For the moment, I am still betting on a gradual victory of good news over bad. And while market volatility will prevail, the next round of company reports in August and beyond could set us up for a rally.

And I am really rooting, as the Americans like to say, for a Santa Claus rally at the end of this year.

Can’t wait for Christmas!

For advice you can trust, contact Switzer Financial Services.

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Published on: Friday, June 18, 2010