All The Economic News Is Not Bad

It seems much that is being written of late is focused on negative data points that attempt to rationalize why a correction is just around the corner. I get the sense the stock market's (Dow Jones Industrial Average) 30+% advance since early July is weighing on strategists' and investors' minds as not being sustainable. Certainly a pullback would be healthy for the markets.

Last week's investor sentiment survey from AAII certainly suggests the individual investor is not overly bullish. In fact, the bullish sentiment reading fell almost five percentage points to 30.77%. This is below the long term average of 39%.

From The Blog of HORAN Capital Advisors

In spite of the lack of enthusiasm of individual investors, and this is a bullish sign for the markets, the broader confidence and sentiment readings continue to improve. The consumer confidence index continues to trend higher along with the the University of Michigan Consumer Sentiment Index.

From The Blog of HORAN Capital Advisors

On the business front many of the data points suggest a continued improvement in the business segment of the economy.

• Strength in industrial production.
  

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• improvement in nondefense manufacturers' new orders.
  

From The Blog of HORAN Capital Advisors

• corporate profits are at record levels; however, after tax corporate profits recently turned lower.
  

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

• business inventory to sales ratio continues to decline to a record low level. If sales continue to improve, this inventory will need to be replaced and will provide support to the production side of the economy.
  

From The Blog of HORAN Capital Advisors

Now that I have noted some positives on the economic front, there are certainly factors that could derail economic growth. I think Bill Gross' April investment outlook, titled Skunked, is a worthwhile read for all investors. The U.S. government has significant budget/structural issues that need to be dealt with by Congress. Any steps to reign in government spending will be contractionary from an economic perspective. The benefit of dealing with the deficit issue though could outweigh the short term negatives. In addition to the budget deficit, directly related is the upcoming end to the Fed's QE2 program.

Also, an article highlight from Abnormal Returns pointed to a report in The Economist that was suggestive of the global economy running out of steam. This recovery is certainly a fragile one, but it is a recovery nonetheless.

The equity and bond markets tend to be forward looking and from a pure technical perspective, Doug Short wrote about how many of the markets are currently testing key support levels. The market will get a chance to digest several important economic releases this week that deal with jobless claims and existing home sales. These support levels are worthwhile factors for investors to watch.

As Winston Churchill once said, "The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty." There are certainly many factors around the globe that could derail our recovery. This does present investors with investment opportunities though.