The market has not had the traditional final slam, accompanied with a strong bond market rally, that is customary during a recession, but the US seems to have escaped without having an official recession. Productivity has already bounced; US wealth grew at the rate of 2.2% last quarter. Non durable goods new orders skyrocketed 32% in June. Job losses have occurred 7 months in a row but not large numbers. GDP continues to grow.
The expected rollover in commodity prices has hit with force. But, 10-year treasury rates have been relatively stable around 4%.
In the past month, the best leading indicator of the economy, the stock market, turned up. The S&P 500 is up 5.3% but this is with a drop in the second largest sector, Energy, down 12.7%. The largest sector, financial stocks are up 8.3% in a month. Consumer cyclical stocks are flat for the month but up better than 9% during the past 5 days. The big turn is in small caps. The IWM was up 11.5% during the past month. 401-K investments should be in the Russel 2000 during the next year or two. US high beta stocks should do especially well during the early stage of economic expansion. Intel (NASDAQ:INTC) has taken off and it could provide leadership for months to come.
INTC is up 18% in a month. I don't know what chip is in the Kindle, but sales are projected to climb. When an analyst upgraded Amazon (NASDAQ:AMZN) the stock jumped about 10%. AMZN is expected to sell twice the number of Kindles this year as was previously thought. The implication is that computer chips will be in high demand.
Kindle sales are being compared to the first year of the iPod. Years ago ( in 1964), a young auto marketing manager was given the opportunity to promote the new Ford Mustang. He later wrote a book about how a businessman needs to recognize a winner and then run with it. That young man was Lee Iaccoca.
I am holding off on my purchase of a Kindle. It is usually wise to wait for the price of "new toys" to fall before jumping in. AMZN has given no indication when a color version will be offered or if an upgraded model is on the way. Last fall, AMZN sold out at $399 each. In April, the unit came available at $349. Today, I drove to Barnes and Noble (NYSE:BKS) and paid $19.95 for a book that could have been delivered in seconds for only $9.95. The reality is that those who buy a few books each year should consider a Kindle because is many times more efficient than are hard covered, physically delivered books.
Another reason to hold off on the purchase is that if I had the money to spend, I would buy shares in INTC or AMZN.
A stock in a totally different category that should be bought is General Motors (NYSE:GM). GM has fallen from $93.625 in 2000 to $11 today. A few weeks ago, the company was getting slammed by high gasoline prices. Acres of trucks are worth more this month than last. Further declines in fuel cost will help the stock. In the meantime, GM is looking under every stone to reduce costs and to increase the fuel economy of its fleet. I don't know the break even sales number for GM but I assure you it has declined dramatically.
Ford (NYSE:F) and GM are looking into the joint development of engines and power trains. Yes, these competitors are serious about lowering costs. GM just added a new option to its truck lines which is basically the substitution of aluminum for steel wherever possible, including the engine block. These trucks cost more but the public will pay more for the higher fuel efficiency. A 10% increase in fuel efficiency on American cars will save over 100 million gallons of fuel per year.
...The biggest factor in the price of stocks is the emotional attitude of investors. Stocks are priced low because investors are unhappy. The higher stocks rise, the happier people will be. Investors only need to worry when every one is buying.
Markets have turned up, INTC has turned up and AMZN is leading the way!