The Lindsey Report – April 2013

Equity values moved marginally higher in April and closed on a high note (as measured by S&P 500).  What may be of greater importance is that they did so with minimal volatility, which was somewhat surprising given a mixed bag of recent economic news.

For instance, this morning (May 2nd) CNBC published an article titled, “Record Earnings? That’s Right…Record”, as if to say, “it’s hard to believe, but it’s true” or “we set a record, it just doesn’t seem like it”.   The article noted that first quarter earnings for the S&P 500 were the highest ever for a single quarter.  Also, more than 70% of the companies reported better-than-expected earnings.

While both were solid numbers, the concern was over “revenue misses”.  Only 43% of the companies have beaten their revenue numbers.  Arguably, growing revenue is a better gauge of a company’s future and overall health, than is the bottom-line profit number – overall a mixed earnings season.

Similarly, The Commerce Department (CD) reported that the economy grew at a benign 2.5% in Q1.  Yes the economy is growing, but it seems to be set on the tortoise speed (maybe a quick turtle).  Many believe the rate needs to be closer to 4% to broadly improve corporate revenue.  In turn, the pace-of-hiring should increase and we could make a significant dent in the 11.8 million unemployed.  This year the economy has been gaining about 155k jobs-per-month and unemployment has been slowly improving; however, a more robust economy would likely add 250-350k monthly jobs (CD).

The one beacon where seemingly all news continued to be positive was the housing market.  A headline in a recent Yahoo Finance article captured my sentiment: it read, “You can see housing helping the US economy get back on its feet”.  It listed a variety of measurements, which were all at multi-year highs, including the Case Shiller home price index, existing home sales, pending home sales and housing starts.  The author believes housing is helping the economy, while areas like government spending are a drag.

In summary, the economic news in April had something for the Bulls and the Bears, but I think more for the Bulls.  My bottom line was that equity values were remarkably resilient in the face of mixed news.  More importantly, the economy continued to improve, albeit taking its sweet time.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual.  To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. 

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