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“Wealth Effect” Improving As Economy Recovers

Investor’s first read      - Brooksie’s edge before the openWednesday, March 28, 2012        9:04 a.m. ETDJIA: 13,197.73   S&P 500:  1412.52O.K., so what do I write about

Investor’s first read      – Brooksie’s edge before the open

Wednesday, March 28, 2012        9:04 a.m. ET

DJIA: 13,197.73   S&P 500:  1412.52

O.K., so what do I write about when  the stock market  isn’t getting thumped by a crisis?

Watch your back –  sit close to the exits – don’t get careless and over extended apply to just about any situation.

A  potentially catastrophic meltdown was avoided here and abroad thanks to leadership decisions that with the benefit of hindsight only the history books will acknowledge.

And now, the economy is gaining traction  as the bull market in stocks has been telling us it would.  There are even signs that the housing market is picking up, though selectively.

These are the ingredients for a rebound in individuals’ “wealth effect,”  a “must” if this economy is going to rip and the bull market soar to ridiculous levels.

We aren’t there yet, but could get there.

Looking back 3-4 years, makes it difficult to buy many stocks, since they have appreciated   three-fold, four-fold and more.  Don’t do that.  Instead focus on current fundamentals and valuations and to the extent that is possible, future potential.

Thinking shorter term, let’s not forget the seasonality pattern called the “Best Six Months” for owning stocks.*  With an impressive degree of consistency, stocks have racked up big gains between November 1 and April 30 over the years. Last year the market topped out on May 2 prior to a nasty 3-month, 19.6% correction in the S&P 500.

The ugliness that will surface from election year campaigning stands to counter the expected good news in our economy.

Just think ahead and be aware that another correction CAN HAPPEN.

TODAY:  February Durable Goods orders were ahead   2.2% but fell short of expectations which may steal some thunder from the bull camp and allow the DJIA to drop to 13,115 (S&P 500: 1403).  That wouldn’t ruin a very positive technical pattern, and it could set up a one-day reversal where the market closes near the highs for the day.


MONDAY: Pending Home Sales Index (10 a.m.) – a leading indicator to housing activity. Dipped 0.5% in February to 96.5 from 97.0 in January, but 9.2% ahead of a year ago. “An uneven but higher sales pattern”:  Lawrence Yun, National Ass’n Realtors.


S&P Case Shiller Home price Index (9 a.m.) – tracks monthly changes in  residential real estate in 20 metropolitan regions.  January’s index  fell 3.8% from January a year ago, in line with expectations and a slight improvement vs. the 4.1% decline in December (yr/yr).

Consumer Confidence ( 10 a.m.) –Based on consumer perceptions of  business and employment conditions , as well as six months hence. The Conference Board’s index of  Consumer Confidence dipped slightly in March to 70.2 from 71.6, higher gas prices were blamed. February’s index jumped 9.3 points to 70.8 well above the recession low of 25.3.


MBA Purchase Applications (7 a.m.) Applications for mortgages. It is a leading indicator for single family home sales and new home construction.

Durable Goods (8:30 a.m.) Durable Goods were ahead 2.2% in February  vs. a decline of 3.6% in January. The gain fell short of the projected 3.0%.  Ex-transportation February was up 1.6% vs. a decline of 3.0% in January.


GDP (8:30 a.m.) – Last estimate for Q4 was plus 3.0%

Jobless Claims (8:30) Dropped 5,000 for week ended March 17 bringing the 4-week moving average down to 355,000.


Personal Income and Outlays (8:30 a.m.) Increased 0.3% in January after a 0.5% gain in December. Nice gain expected in February report.

Chicago PMI (9:45 a.m.)  Purchase managers survey of regional business conditions. Rose 3.8 points (6%) to 64 in February. New orders index jumped 8.8% a good omen for this week’s report.

Consumer Sentiment (9:55 a.m.)  a survey of 500 households regarding financial conditions and attitudes about the econo9my. Slipped 1.0%  in a preliminary March survey.

George  Brooks

*Stock Trader’s Almanac


The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

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