It's the Economy, Stupid
|Written by GSCR Staff|
|Thursday, 30 May 2013 09:03|
It may have been the ragin’ Cajun, James Carville, who made the line "It’s the Economy Stupid" famous (or infamous base on your politics) during the 1992 presidential debate. Whether it was him or not, is immaterial. The larger point is that the overall health of the US economy trumps all in national politics.
In Tuesday’s Goldman Guide we turned slightly political, addressing the three political scandals facing the president right now, and how the void of leadership can hurt the markets. At a minimum, the President will be politically exposed in the 2014 mid-terms, which could result in a loss of the Senate to the GOP, creating a true gridlock situation. This may not be all that bad if history is any indication with a huge boom economy in the mid to late 1990’s given the same situation. I digress.
The one ace in the hole for the president is the economy. As we mentioned yesterday, the University of Michigan’s Consumer Confidence Index rose to a 5-year high for May 2013. While this metric is purely a ‘feel’ from a survey, it indicates a sentiment that the general turn around will continue. The housing market continues to improve. A major indicator, the monthly jobs report, comes out next Friday. This number has continually improved, even with mixed results as a large portion of the improvement is due to people leaving the work force and therefore not counted. Finally, markets are still at record highs in the US.
Where are we going with this? The positive news on the CCI may have delayed the summer sell off for a day as the S&P opened Tuesday at 1664 and rose to 1674 on the news, before dropping to 1648 yesterday. On Tuesday, the Consumer Discrete Select Sector SPDR (NYSE – XLY) opened up from $56.80 on the close Friday up and ran up to $57.74 on the news, before the sell-off began and the ETF closed yesterday at $56.76.
We have definitely entered a general profit taking and volatility mode in the market. The VIX reached a 5 week high yesterday in inter-day trading. Investors must evaluate companies from a fundamental perspective and decide which stocks to hold. Traders on the buy side may wish to focus on big economic news and play positive news with day trading strategies. The Wall Street Journal has an excellent calendar for important dates.
To put a bow on it, expect a modest selloff this summer with some nice pops if the economy actually continues to improve. If trends continue, it should. As long as it does and the summer sell-off is not too big, the president, as we state in the Goldman Guide, should not be in any real peril, because after all, “It’s the economy stupid”.
Have a great day.
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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