By Jonathan Chen
The Japanese earthquake and tsunami caused more devastation than anyone gave them credit for, and they affected business by a large amount. With the recent better-than-expected economic reports, it looks as if the April-May slow patch is over, and the economy is beginning to rebound again.
It started with the June Chicago PMI, which came in well past expectations at 61.1 versus estimates of 54.0. Then it went to ISM, which rose to 55.3. Expectations were for a reading of 52.3. The reading was higher than it was in May, which shows that the rebound is on its way.
This morning, we saw the June ADP employment come out, and it blew past expectations. The June report came in at 157,000 private sector jobs, versus expectations of 70,000.
In addition, the initial claims for July 2 came in better than expected, at 418,000, down from a revised 432,000 from last week. Continuing claims came in at 3.68 million, below the estimates of 3.7 million.
It looks as if the slow patch is behind us, and the economy can continue to resume its uptrend. Stocks are moving sharply higher, as evidenced by last week's enormous gains and the continued uptrend from last week.
Bullish: Traders who believe that the economy is likely to continue to improve might want to consider the following trades:
- Caterpillar (CAT), which is a beneficiary of a strong global economy, should do well with higher-than-expected growth around the world. Shares trade at 12 times forward earnings and sport a 1.7% dividend yield.
- Deere & Co. (DE) is also likely to benefit for the same reasons, as well as from the company's tremendous exposure to the agricultural sector of the global economy.
- Technology is also likely to continue to benefit, and semiconductor stocks like Qualcomm (QCOM) and Ceva (CEVA) should benefit.
Bearish: Traders who believe that the data we are seeing now is just a blip and we will falter again may consider an alternate positions:
- Shorting the transportation stocks, such as CSX (CSX), Union Pacific (UNP), and FedEx (FDX), could prove to be profitable.
- If technology should falter, names like Apple (AAPL), Google (GOOG) are likely to fall sharply on growth concerns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.