Latest Economic News Recap: Taking Stock Of An Economy Increasingly Stuck In Quicksand

Apr. 30, 2012 12:06 AM ET
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Contributor Since 2012

I am an investment professional currently working for the amazing Wall Street Bad Boys.

For the last week in April, most economic data coming out of the US was disappointing to put it mildly. To recap the week's economic data announcements:

  • The Conference Board announced on Tuesday that its Consumer Confidence Index was at 69.2 in April, down from 69.5 in March. Economists had been expecting an increase to 70.
  • The Standard & Poor's/Case-Shiller home-price index also disappointed as it showed that prices fell in February from January in 16 of the 20 cities it tracks - its sixth straight monthly drop. In other words, the housing market is still struggling.
  • On Wednesday, the Commerce Department announced that durable goods orders dropped 4.2% last month when economists had expected a drop of only 1.7%. More worrisome, the decline was the largest since January 2009 when the economy was in freefall.
  • Initial and continuing claims data for the second to the last week of April were announced on Thursday and while the consensus believed that things were improving and that 375k claims would be reported, the number of claims only dropped by 1,000 to 388,000. Moreover, the four-week moving average for new claims rose by 6,250 to 381,750 - it's highest since the week that ended January 7. However, there is no agreement about whether the weakness is due to seasonal factors or that the underlying economy is weakening but the data seems to be hinting at the later.
  • On Friday, first quarter GDP figures were released and while analysts were expecting the data to show that the economy slowed during the quarter to 2.5% from 3%, the number actually came in at 2.2%. One bright spot was consumer spending but even that was no silver lining because as it appears what people earned is not keeping up with their rising bills - meaning consumer spending will likely taper off.

However, one bright spot in recent weeks has been earnings. On Thursday, 63 companies on the S&P 500 were set to report financial results and so far this year, US companies have been beating estimates at their highest rate in two year. In fact, 80% of the 192 companies who have reported results since April 10 to the middle of last week have exceeded forecasts. Then again, Wall Street expectations have been pretty low for earnings.

Nevertheless, it's also worth considering that while the Fed has increased its outlook for growth this year, it has also cut its growth outlook for both 2013 and 2014 and it has pledged to keep interest rates at rock bottom levels until at least late 2014. This Fed policy of super low interest rates have been devastating to savers and those on a fixed income hoping to live off bank interest with the stock market and specifically stocks paying decent dividends appearing to be the main beneficiaries of the policy.

However, there is trouble on the horizon even for the stock market as the Bush tax cuts are set to expire at the end of the year and it's unlikely they will be renewed since it's an election year - meaning any investor with a short to medium term horizon would be wise to lock in their profits this year when their taxes and tax brackets are lower. Moreover, more money going to the government next year means less money going into the stock market next year as well.

Hence and anyone with a long-term horizon might want to put some investment capital to work now in strong stocks with solid dividends to look in any further gains this year while holding some money on the sidelines to take advantage of any dip in the market next year or if the economy clearly stalls. In other words, keep a close eye on stock predictions along with our predictions for the stocks listed on your My Portfolio screen.


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