The Dow Jones Industrial Average closed Tuesday at its highest level since December 2007 and was higher still this morning, Boeing’s Dreamliner troubles notwithstanding. Fourth-quarter earnings at IBM, for example, beat expectations. This Kenyan socialism has worked out pretty well for the Dow. The broader Standard & Poor’s 500, on the other hand, is off to its best start since…2012.
This is not a stock-picker blog and the Dow is, at best, an imperfect measure of the broader economy. Still, some macro lessons can be drawn. Large multinationals continue to do very well — the earnings season will see if this continues. Microsoft’s earnings will be of particular interest here. The economy continues to grow, albeit slowly. The market is happy that the debt ceiling isn’t turning into a suicide standoff.
On the other hand, the growth is slow at home and not doing particularly well anywhere. Worldwide unemployment is on track to hit a record 202 million, and persistent joblessness continues at home. General wage stagnation hurts the job creators, i.e. consumers. Europe is not fixed. China is not a sure bet. Apple may face some trouble.
Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, writes that he expects “another muddle-through year, but that does not necessarily mean more of the same for all investors.” S&P 500 earnings growth could be in a 5 percent to 10 percent range, energy and materials stocks should do well, but the market will remain volatile. “Currently valuations are already reflecting a negative outlook, allowing the potential for markets to rally if they receive unexpectedly good news. The resilience shown by markets in 2012 should continue into 2013, as markets still possess the same characteristics and we remain in a part of the cycle where they discount too pessimistic a future.”
Two things to remember: If the economy starts a better recovery, especially worldwide, oil prices will rise, putting a drag on growth. It’s a yo-yo effect we’ve seen the past several years. That’s the higher-cost energy future we’re living in. When oil prices are lower, it’s because growth is slower. It’s not 1969, or even 1981. Also, the market will eventually start to price in the costs of climate change.
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Today’s Econ Haiku:
A new bull market?
The horns of a dilemma
There’s bull and there’s bull