Moderate Inflation Benefits Equities

During moderate periods of inflation, equities tend to generate decent performance results. I posted the below chart in a post, Where To Invest In An Inflationary Environment, in mid 2010 that details the performance of various investment categories based on different inflation ranges going back to 1972.

From The Blog of HORAN Capital Advisors

Since mid year 2010 inflation has been trending higher with the latest year over year report showing inflation running at nearly 3.5%.

From The Blog of HORAN Capital Advisors

The blog at Crossing Wall Street selected the below chart as the Overlooked Chart of the Year. The chart compares the S&P 500 Index to the market’s expectation for inflation (the 10-year TIP spread). Of late, there has certainly been a high correlation to higher inflation expectations and the S&P 500 Index return.

From The Blog of HORAN Capital Advisors

Determining the true level of inflation is also a frequent topic. The Shadow Government Statistics (SGS) site makes an effort to track data on indexes when the calculation methodology is changed. In 1990, the CPI calculation was changed and a comparison of the current CPI versus the 1990-based calculation can be found on the SGS site.

Equity Performance in 2011

With the close of trading today, following is a quick look at the 2011 price performance of a few select equity markets around the globe.

From The Blog of HORAN Capital Advisors

Source: Reuters

Watching The Valuation Of Dividend Payers

The investment mantra this year has been to focus on dividend paying stocks. Over the long run, payers have had a tendency to outperform the non payers and this has certainly been the case this year. On the other hand though, valuations do matter and the below chart provides investors with a cautionary view of simply buying "any" investment that has yield.

From The Blog of HORAN Capital Advisors

Source: South of Wall Street

Investors Favoring Bond Funds

Recent mutual fund flow data shows investors continue to favor bonds over equities.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

Source: ICI

With the sovereign debt issues in Europe top of mind for investors, they continue to bet the best of the worst fixed income investments are U.S. Treasuries. One risk investors face with fixed income investments is the negative impact of a rise in rates. The 10-year U.S. Treasury yield is a meager 1.85% in spite of the fact the consumer price index is running at a year over year rate of 3.4%. Investors are in for a rude awakening when rates do begin to move higher (bond prices have an inverse relationship to the move in interest rates).

From The Blog of HORAN Capital Advisors

Fragile Employment Market

The improvement in the unemployment rate earlier this month was certainly positive on the surface. The rate declined to 8.6% from the previously reported 9%. The improvement though came largely from the 300,000 individuals that simply stopped looking for a job. As a result, these additional people are not counted among the unemployed. As the below chart shows, the number individuals not in the labor continues to rise.

From The Blog of HORAN Capital Advisors

This fragile state of the consumer also shows up in the number of individuals on food stamps.

From The Blog of HORAN Capital Advisors

Dividend Aristocrat Changes For 2012

Going forward S&P has changed the methodology on how they determine which companies qualify as Dividend Aristocrats. S&P notes they will only count regular dividend payments when determining the calendar year total dividend payments of a company. Special cash dividends will no longer be considered.

The table below contains a list of Standard & Poor's Dividend Aristocrats for 2012. The rebalance will take place at the market's close on December 16, 2011. The green highlighted companies are the additions and the yellow highlighted company is the deletion. S&P has added ten new Aristocrats while eliminating one, CenturyLink, Inc.

Full View

Barron's Income Investing Blog highlights some year to date dividend comments from Howard Silverblatt, Senior Index Analyst for S&P:

• Year-to-date (YTD) dividend payers in the S&P 500 have returned 1.72%, compared to the non-payers loss of 4.63%.

• The actual dividend payment YTD is up 16.2%.

• The indicated dividend rate (based on the current rate) is up 16.8% YTD, but still off 4.9% from the June 2008 high.

• From 1995 the S&P 500 indicated dividend yield has averaged 43% of the U.S. 10-year Treasury note, the current rate is 105%.

• 215 issues have a current yield higher than the 10-year Treasury.

Disclosure: Long ABT, APD, ADP, BDX, CTL, CB, BEN, GPC, ITW, JNJ, LOW, MCD, NUE, PG, WMT

The Need For Cutting Spending In Washington

Much of the rhetoric coming out of Washington is focused on the need for more revenue, specifically from individual tax payers. The millionaire tax discussion is emblematic of this focus. As the below chart shows though, individual tax receipts into the U.S. Treasury are up 22% on a year over year basis through the end of September with overall receipts up nearly 7%.

From The Blog of HORAN Capital Advisors

Additionally, individual receipts for the government are near the level received in 2007. On the other hand, government spending has grown 2% on a year over year basis.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

In short, Washington needs to have a greater focus on cutting spending, while at the same time promoting policies that are favorable to businesses to enable greater employment growth.

Future Strength In Retail Sales?

A common view from pundits on the strength in retail sales on Black Friday and Cyber Monday is much of the increase represented consumers buying forward. In other words, the common take on the strong sales report was it likely won't continue into December. If history is any guide, the below chart might indicate additional retail sales growth is likely for the balance of the weeks leading up to Christmas.

From The Blog of HORAN Capital Advisors

The dollar value of total cyber sales increased 22% versus last year and dollars spent per buyer increased 9%.

From The Blog of HORAN Capital Advisors

Since consumers account for 70% of GDP, these retail sales figures suggest Q4 GDP could surprise on the upside.

Source:

comScore
Cyber Monday Spending Hits $1.25 Billion to Rank
as Heaviest U.S. Online Spending Day in History
November 29, 2011
http://www.comscore.com/Press_Events/Press_Releases/2011/11/Cyber_Monday_Spending_Hits_1.25_Billion

Many Corporate And Consumer Positives

I noted in a post a few weeks ago about the positive trend in the JOLTS (Job Openings and Labor Turnover Survey) report which was released by the US Department of Labor and indicated job openings, as of the end of September, were at their highest level since 2008. Additionally, jobless claims, a key leading indicator, have now moved below 400,000 on a four-week moving average basis, which signifies an improving job market. The ADP Private Payroll report showed a 206,000 job gain in November, well above estimates and the best reading since March 2010. The broader November jobs report indicated the US economy added 120,000 jobs and that the unemployment rate declined to 8.6% from 9.0%, the lowest rate since March 2009.

On the corporate side the October Index of Leading Economic Indicators rose 0.9%. This was the sixth monthly increase in a row. Nine of index’s 10 components saw increases for the first time since May of 2003. As noted by the conference board,

“the LEI is pointing to continued growth this winter, possibly even gaining a little momentum by spring. The lack of confidence has been the biggest obstacle in generating forward momentum, domestically or globally. As long as it lasts, there is a glimmer of hope.”

From The Blog of HORAN Capital Advisors

Other positive corporate data points:

• Industrial production rose 0.7% in October
• Chicago PMI rose to 62.6 from 58.4, a seven-month high, and the new orders component rose to its highest level since March at 70.2
• The Institute for Supply Management’s (ISM) Manufacturing Index rose to 52.7, the highest level since June
• New orders increased to 56.7 from 52.4

Lastly, a number of our articles are republished by SeekingAlpha. Yesterday they republished our post, Market Driven By Emotions Versus Fundamentals. What was interesting is the number of bearish comments (contrarian indicator?) and one comment about the macro environment having a controlling influence on the markets direction.

The biggest potential market negative seems to be the debt crisis in the Eurozone. On the other hand, the economic environment in the U.S. continues to improve in spite of the downward revision to third quarter GDP from 2.5 to 2.0. The revision was largely attributable to a decline in private inventories, which reduced overall GDP by 1.55 percentage points. This type of revision likely means higher growth in Q4 and into early 2012 as businesses have to rebuild inventory levels to keep up with what appears to be improving demand. Our post, Market Driven By Emotions Versus Fundamentals, details some of this demand by touching on the strength in retail sales on Black Friday and Cyber Monday.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

There are many positive data points for investors to consider. Certainly the issues in Europe, not to mention in Washington, are not to be made light of. However, the magnitude of the market's advance last week might be some indication of the attractiveness of U.S. equity valuations. Market volatility is high though, so investors should take a disciplined approach if they are building equity positions.

Market Driven By Emotions Versus Fundamentals

I write this shortly after the Dow Jones Industrial Average rockets higher by nearly 500 points, or 4+%, in just one day, I think back to the concerns raised in recent interactions with some investors expressing concern about the market’s volatility. In August and September, 40% of the trading days in the S&P 500 Index saw daily price swings of plus or minus 2%. This level of volatility was last seen in the early 1930’s. Increasingly, the market seems to be trading more on emotion than on company fundamentals. The rally at the end of November was fueled by the announcement that central banks around the globe would provide a liquidity back stop for the European debt issues. The European crisis is contributing to investors trading on short-term emotion while they worry about a repeat of the negative performance seen in 2008 and 2009. One can certainly see similarities; however, we believe there are more recognizable and important differences.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab noted in a recent report,

“the problems in the eurozone are nothing new: too much debt from eurozone member countries to over-leveraged European financial institutions. Adding to the woes is the lack of global competitiveness among many of the zone's members, thanks to the tying of 17 vastly different economies and policies to one (too-strong) currency. The lack of a single fiscal authority within the eurozone that's capable of enforcement or supervision has allowed the problems to fester and the can to be continually kicked down the road (emphasis added).”

There are many differences in Europe’s problems now and the subprime crisis in the U.S. in 2008. On the positive side, much was learned from the crisis in the U.S. and one outcome is the banks in the U.S. are much better capitalized today. Additionally, the crisis in Europe is one of a top down crisis versus the U.S. crisis which started at the bottom with Lehman Brothers, etc. In short then, European governments have a little more time in crafting a solution.

For investors, we recommend focusing on the fundamentals both economically and at the company level. Economically in the U.S., the data continues to come in better than expected. The November ISM manufacturing index report was stronger than expected (52.7 vs. 51.8) and joins a growing list of indicators that suggest moderate economic growth in the fourth quarter of around 3%. Retail sales on Black Friday exceeded expectations and cyber Monday sales were up a better than expected 24%. The labor market continues to show improvement as can be seen in the below charts: ADP’s Private Employment change for November continues to show improvement and announced corporate layoffs continue to decline.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

At the company level, valuations for U.S. equities continue to look more attractive. The below chart represents a broader market P/E measure. The NIPA P/E ratio measures earnings from the GDP calculation and divides it into the S&P 500 Index. Using this measure, valuations are at levels last seen in the early 1980’s. In addition to attractive P/E valuations, corporate balance sheets have record levels of cash. This cash is being returned to shareholders in the form of higher dividend payments and stock buybacks.

From The Blog of HORAN Capital Advisors

In conclusion, the economic data continues to come in better than expected and stock valuations are attractive. Certainly, the news coming out of Europe is going to be market moving and volatility will likely remain high. However, in the longer term, company fundamentals will be the ultimate guiding force for future equity valuations and fundamentals look strong.

Investor Sentiment Not As Bad As I Expected

Given all the negative news one is hearing and reading about, I expected investor bullish sentiment to be much worse than actually reported by AAII. Much of the European news is negative and today, at the close of trading, the Dow Jones Industrial Average reported its worst Thanksgiving week performance (-4.8%) since the markets began observing the Thanksgiving holiday in 1942¹.

As the below chart details, the bullish sentiment declined to 32.7% this week versus last week's reading of 41.9%. Bearish sentiment rose to 38.3% versus the prior week's level of 31.0%. This results in a bull/bear spread of -5.6%. Market bottoms have generally occurred when the bullish sentiment reading falls into the 20%+ range and the bull/bear spread widens to a negative 20+%.

From The Blog of HORAN Capital Advisors

Additionally, the CBOE Equity Put/Call Ratio, although elevated, was reported at .72 on Wednesday. In the case of the equity/put call ratio, a level above 1.0 is a pretty good sentiment level suggesting the market may be oversold.

From The Blog of HORAN Capital Advisors

Lastly, the percent of S&P 500 stocks trading above their 50 day moving average has declined from over 90% at the beginning of November to 21% on Wednesday. The market appears oversold by this measure, however, not significantly.

From The Blog of HORAN Capital Advisors

¹The Wall Street Journal

The Euro Crisis: Revisiting Pitfalls Of The Gold Standard

The current issues impacting the Eurozone countries harkens back to the problems with the gold standard in the 1930s. Many believe the U.S. depression in the 1930s was worsened by the fact the U.S. and many other countries were on the gold standard. With the gold standard exchange rates were fixed i.e., depreciating ones currency was not an option. The gold standard did not create the depression; however, it most likely pushed the country into a depression. For more on this, one can read, "The Gold Standard and the Great Depression" in Contemporary European History by Barry Eichengreen and Peter Temin.

With the Euro, currency depreciation is not available to countries like Greece. As a recent Bloomberg BusinessWeek article noted, the option available to these stressed countries is cutting wages and government benefits. Now I am not saying this is a bad idea; however, significant economic contraction occurs. BusinessWeek notes,

"The most unfortunate difference between then and now is that the euro, unlike the gold standard, is a raccoon trap: Its designers deliberately left out an exit procedure. That means you can get in, but you can’t get out without leaving a part of yourself behind. Eichengreen points out that Britain was growing again by the end of 1932, just over a year after abandoning gold under duress. Today a country—say, Greece—that quit the euro would take far longer to right itself. That’s because unlike Britain, to get relief Greece would have to default on its euro-denominated debts and damage its credit rating. "The Greek government," Eichengreen says, 'will be hard-pressed to find funds to recapitalize the banking system. Greek companies won’t be able to get credit lines. The new Greek government is going to have to print money hand over fist. At some point they would be able to push down the drachma and become more competitive. But the balance is different now.'"

In the end, the worst part of the Euro union was the fact it was/is a monetary union and not a fiscal union. The decisions in Europe will be difficult; however, in order to prevent a contagion, the ECB will likely need to structure a facility not too dissimilar than the unpopular TARP program in the U.S. For the ECB though, they would be making loans to countries like Greece and Italy. The alternative is kicking out profligate countries and this would be economically difficult for Europe.

Source:

The Euro: As Good (and Bad) as Gold
Bloomberg BusinessWeek
By: Peter Coy
November 17, 2011
http://www.businessweek.com/magazine/the-euro-as-good-and-bad-as-gold-11172011.html

Tom Gallagher Interview: Fiscal Policy Currently Has More Influence Than Monetary Policy

Consuelo Mack interviews Tom Gallagher on this week's WealthTrack. Tom was formally with ISI Group until retiring recently and is now a principal at The Scowcroft Group. While at the ISI Group, Tom was voted the #1 analyst on Washington matters by Institutional Investor from 2001-2010. In the interview, Tom notes government policies have rarely been this important or influential in the economy and markets. He discusses what to expect from the White House, Congress and the Federal Reserve and what it means for your investments in this deleveraging environment. He notes where investors focus in the run up to the technology bubble was on capital gains, in this environment, income return from ones investments is where ones focus should be at this point in time.

Fearful Investors

One index measure investors review to gauge the level of fear in the market is the VIX Index. Currently, the VIX is trading at 31.78, down a little over 1 point today. High levels in the VIX translate into a fearful market and can be indicative of a short term market bottoms. In the early part of 2010, the market's first encounter with the Euro crisis, the VIX hit 48. The S&P 500 Index bottomed shortly after this. In other words, the VIX can be viewed as a contrarian indicator.

Another variation of the VIX is to look at the VIX Index divided by the 10-year Treasury Index. Again, high levels in the VIX show investor fear in the equity markets. A low level in the 10-year Treasury indicates bond investors generally have an anemic growth and inflation outlook over the longer term. Consequently, a high ratio number is a contrarian investment measure. The below chart contains a graph (blue line) of this ratio along with a graph of the S&P 500 Index (red line).

From The Blog of HORAN Capital Advisors

h/t: Calafia Beach Pundit

Job Openings Continue To Rise (JOLTS)

At the end of September, the Bureau of Labor Statistics reported (PDF) there were 3.4 million job openings. This compares to 2.2 million job openings at the end of the most recent recession or a 54% increase.

From The Blog of HORAN Capital Advisors

This improvement in job openings is certainly a positive sign economically; however, companies indicate they are having a difficult time finding qualified employees as noted in this Cincinnati Enquirer article: Wanted: Anyone who can qualify.

Dividend Growth Equities Attractive At This Point In The Market Cycle

For dividend investors, one of the keys is to invest in those companies that have a sufficiently high dividend yield that is sustainable and that have high dividend growth rates. Investors focusing only on high yielding stocks run the risk of investing in a company that can not sustain its dividend and then face a dividend cut. Dividend cuts most often have a negative impact on a company's stock price.

As noted by Sudhir Nanda, head of quantitative equity research at T. Rowe Price, "This makes intuitive sense. Companies with growing dividends are signaling confidence about their future earnings. They tend to be stable businesses, well positioned in their markets, and able to perform throughout market cycles, which make them good candidates for long-term growth." The below table details the extra performance gained by those companies that have these dividend characteristics.

From The Blog of HORAN Capital Advisors

Over the long run, dividend growth stocks have outperformed non-growth payers, non-dividend payers and dividend cutters as I have noted in several past posts. Below is a chart separating the stocks by dividend policy for equities in the Russell 1000 Index.

From The Blog of HORAN Capital Advisors

For investors, one factor to keep in mind is dividend paying stocks tend to underperform the overall market in volatile upward market spikes. However, in volatile down market periods, the higher quality dividend growers generally hold up better; and thus tend to outperform over a complete market cycle.

There are many reasons why dividend growth stocks appear attractive in this market environment, not the least of which is they tend to be less volatile. Companies are sitting on record levels of cash and are likely to use some of this cash for increased dividend payments.

The obvious is stocks are not bonds; however, investors looking to increase their allocation to equities should consider dividend paying stocks. On a year over year basis through September 30th, S&P 500 dividend payments are up over 14%. Year to date through November 8th, for companies that have increased their dividend, S&P reports the median increase is 14.55% and the average increase is 27.82%; 27 companies have at least doubled their dividend. This is an attractive growth rate of income investors aren't likely to find in bonds. More on this strategy can be found in my article, Dividends As An Alternative To Low Bond Interest Rates.

Source:

Dividend Growth Stocks May Be Timely As Economy Sputters (PDF)
T. Rowe Price Report
Fall 2011
http://individual.troweprice.com/public/Retail/xStaticFiles/Fall2011PriceReport.pdf

Third Quarter Earnings Strong, But Q4 Growth Revised Lower

For the third quarter of 2011, 454 companies in the S&P 500 have reported results with 70% reporting earnings above expectations. The estimated earnings growth rate for Q3 is 17.7% according to Thomson Reuters.

From The Blog of HORAN Capital Advisors

 Source: Thomson Reuters

Companies are expressing less optimism about fourth quarter earnings though. Thomson Reuters reports there have been 70 negative EPS announcements for Q4 compared to 22 positive announcements. This equates to a 3.2 negative to positive ratio. This is the highest level of N/P since Q4 2008 when the ratio stood at 3.4. The long term average N/P for the S&P 500 Index is 2.3. Below is a breakdown of the  revised earnings growth rates for Q4 by S&P 500 sector.

From The Blog of HORAN Capital Advisors

Could The Debt Crisis Come To The U.S.?

Much of the volatility impacting global markets of late is the result of the European sovereign debt issues. Italy is the latest country to see its bond rates soar.

According to a recent article in the Wall Street Journal, Italy has €1.9 trillion ($2.6 trillion) in government debt or nearly one-quarter of all euro-zone public debt. Over the course of the next year, Italy must refinance over 15% of its outstanding debt obligations. Given the magnitude of Italy's budget deficit and the recent rise in Italian bond yields, suggests investors are not confident of Italy's ability to deal with these maturities. The size of these debt obligations could be overwhelming for the EU on top of dealing with the debt issues in Greece. This is the type of contagion the EU is trying to prevent.

If history is any guide, past debt defaults by countries have occurred at levels where country debt to revenue levels were much lower. In a November report by Absolute Return Partners they highlighted the debt to revenue ratios of countries today versus these prior country defaults.

From The Blog of HORAN Capital Advisors

One might ask why Japan is not experiencing a crisis. For one, it has a more diverse economy and more importantly, its interest rates remain at very low levels. However, if Greece and Italy are an example, rates can rise very quickly. As noted in Absolute Return Partners' November report, "'A country is bust when the markets decide,'" as stated by Albert Edwards, Societe Generale Cross Asset Research.

So how does the U.S. debt structure compare with countries in Europe that are encountering refinancing risk. If one looks at the country debt level, both on and off balance sheet debt, the U.S. is only behind France in terms of liabilities.

From The Blog of HORAN Capital Advisors

Of potential concern for the U.S. is the level of debt maturing over the course of the next five years.

From The Blog of HORAN Capital Advisors

Source: Center For Financial Stability (PDF)

Compared to many other countries, the percentage of short term debt maturing in less than five years is largest for the U.S.

From The Blog of HORAN Capital Advisors

Source: Center For Financial Stability (PDF)

Of particular concern for the U.S. is the level of its budget deficit in spite of the fact revenues into the treasury continue to grow. The U.S. currently borrows nearly 39 cents for every dollar it spends. Additionally, interest expense is $241 billion or 6% of the government's budget. Given the low level of interest rates on the Treasury's debt, the 10-year Bond is just over 2%, it would not take much of an interest rate spike in the U.S. to negatively impact the government's budget.

Absolute Return Partners highlighted comments from the Fed's summer Jackson Hole Wyoming meeting where the Bank for International Settlements concluded,

"...the debt problems facing advanced economies are even worse than we thought. Given the benefits that governments have promised to their populations, ageing will sharply raise public debt to much higher levels in the next few decades. At the same time, ageing may reduce future growth and may also raise interest rates, further undermining debt sustainability. So, as public debt rises and populations age, growth will fall. As growth falls, debt rises even more, reinforcing the downward impact on an already low growth rate. The only possible conclusion is that advanced countries with high debt must act quickly and decisively to address their looming fiscal problems. The longer they wait, the bigger the negative impact will be on growth, and the harder it will be to adjust."

For the U.S. then, they must address their deficit issues sooner versus later. One significant component will be to create an environment that has a positive influence on economic growth. Additionally, the growth rate in entitlement expenditures must be curtailed. The solutions offered by the ill conceived deficit committee in Washington will certainly be important.

High Unemployment Is Becoming A Long Term Structural Issue

It appears the high level of unemployment and the underemployment level (U-6) are becoming a long term structural issue. The U-6 has trended somewhat lower; however, seems stubbornly stuck above 16%. Additionally, the unemployment rate seems stuck above 9%.

From The Blog of HORAN Capital Advisors

The mismatch between skills and job openings seems to be more structural as time goes on. As noted by the BLS, the relationship between the unemployment rate and the vacancy rate is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle. The BLS goes on to note that during an expansion, the unemployment rate is low and the vacancy rate is high. During a contraction, the unemployment rate is high and the vacancy rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward, up and toward the right (emphasis added).

From The Blog of HORAN Capital Advisors

Source: Bureau of Labor Statistics (PDF)

The potential upward shift that may be occurring can be seen in the below chart from July.

From The Blog of HORAN Capital Advisors

Source: Fidelity

This structural change in employment is likely a trend that won't be reversed in a short period of time. Many of the unemployed have been displaced from construction related fields where the unemployment rate is over 20%. Little improvement is seen in construction, both commercial and residential, near term.

Will This Be A Buy The Dip Type Market For Stocks?

October was certainly a good one for the U.S. equity markets in spite of the 276 point decline today. The Dow Jones Industrial Average increased more than 1,000 points in the month returning 9.5%. The S&P 500 Index increased 10.8% in the month and was the best return since December 1991. A 3-5% pullback certainly would not be surprising given the strength of the advance in October. Will investor then buy into this pullback? I believe they will. One key will likely be the ability of the market to find support around the 200 day moving average of 1,274.

From The Blog of HORAN Capital Advisors

From a fundamental perspective, valuations and earnings for companies in the S&P 500 Index in Q3 are coming in at a respectable level. Of the 315 companies that have reported results for Q3, 71% have reported earnings above analyst expectations and this is higher than the long term average. Importantly to, revenue growth has growth has exceeded expectations as well.

Almost two years ago, I wrote a post that focused on indicators investors might evaluate to determine the future direction of the economy. Following is an update on several of those indicators and they do suggest the economy is not going to dip into another recession.

Durable Goods Orders

• a positive trend continues in durable goods orders since the recession end in 2009.
  

From The Blog of HORAN Capital Advisors

Jobless Claims

• jobless claims remain stuck above 400,000; however, they are trending lower. This is indicative of of a slow growth economy. The initial report for Q3 GDP was growth at 2.5%.
  

From The Blog of HORAN Capital Advisors

Retail Sales

• strength in retail sales continues to surprise on the upside.
  

From The Blog of HORAN Capital Advisors

Chicago PMI

• the Chicago ISM-Purchasing Managers Index came in below expectations today; however, the reading remains above 50 indicating an expansionary environment.
  

From The Blog of HORAN Capital Advisors

Consumer Confidence

• an area of concern is the confidence level of consumers and businesses. The lack of business confidence was highlighted in the Chicago Purchasing Managers release today. Businesses have concerns above the strength of the economy going into 2012. As the below chart shows, consumer confidence (blue line) is trending lower as well. This lack of confidence on the part of both businesses and consumers will likely constrain economic growth and result in a slow growth environment through the election in 2012.
  

From The Blog of HORAN Capital Advisors

Looking to the end of the year, volatility will likely be the norm. Washington, D.C.'s so-called Gang of 12 needs to come up with a "credible" deficit reduction plan. With the U.S. dealing with its debt issues along with the EU's sovereign debt issues, the cure for dealing with over leverage will likely be slower economic growth, but growth nonetheless. These issues alone will influence market action in the short term. Company fundamentals though look to be good and fundamentals tend to drive long term investment returns.