U.S. Stock Market Powers Economic
March 5, 2012
Laughing at the sleeping bears, the U.S. stock market continued its upward trend with the Dow Jones Industrial Average hitting 13,000 for the first time in four years, retreating slightly to 12,977 March 2. When the markets turned long last Fall, it threw short selling hedge and private equity funds for a loop, finally saving long-term investors waiting patiently for decent returns. With the Labor Dept. slated to report jobs numbers next Friday, economists expect a continuation of last month’s 243,00 gains, though most expect about 210,000. Since June of 2010, the nation has added around 3.5 million jobs or about half the quantity lost since the Great Recession started in 2007. If trends continue, the economy could add nearly 2 million jobs by Election Day, giving Obama all that he needs for reelection. Republicans can only pray for bad news with all things pointing to more growth.
Coming out the Great Recession, the GOP continues to blame Obama for the economic mess started under former President George W. Bush. While the GOP hopes it can continue selling “Obama’s recession,” all data and stats point to a strong recovery based on solid White House economic policies. As corporate profits continue to soar, expectations of more stock market growth look more realistic, with U of Penn’s Wharton Prof. Jeremy Siegel predicting the Dow at 15,000 or beyond. Perennial bears, like New York University’s Stern School economist Nouiel Roubini, have been proven wrong. As the nation’s unemployment rate of 8.3% drops, the U.S. Treasury continues to rake in more tax dollars, despite the historically low tax rates. At some point, Federal Reserve Board Chairman Ben S. Bernanke will raise interest rates, signaling a sustainable economic recovery.
Market-makers like New York’s Goldman Sachs have been sending out long signals, reigning in short sellers and rewarding long-term investors. When the market moved sideways, dominated by short selling hedge and private equity funds, it was difficult for the economy to gain traction. Goldman Sachs has contained short sellers and promoted the kind of stability needed to generate cash for the nation’s publicly traded companies. With more cash in their stock accounts, publicly traded companies have been hiring at a furious pace, driving down the unemployment rate and reducing federal budget deficit . “The rally will continue as long as better economic information continues. The Question is, ‘Are we seeing some sustainable improvement in the economy?’ I think the answer is ‘yes,’ so I think there is going to be some continuation in the rally,” said Bryant Evans, portfolio manager at Cozad Asset Mgt. in Champaign, Ill.
Already at a three-year low, another drop in the current 8.3% unemployment rate makes tough sledding for the GOP this November. GOP frontrunner former Massachusetts Gov. Mitt Romney must retool his message of “Obama the Jobs killer” or face a backlash in the polls. Good economic news spells trouble for the GOP argument that the nation can’t afford another four years of Obama. Labor Dept. data vindicates Obama and Bernanke’s economic policy of government bailouts and historically low interest rates. It’s getting harder to argue that Obama’s economic policies have done anything but help fix the economy. Despite the recent run-up in oil and gas prices, corporate profits are up, with more growth expected in the future. By Election Day, the Dow could be around 14,000 with the employment rate possibly dipping under 8%, reducing federal budget deficits.
Corporate earnings growth for Q-4 hit 9.7, spelling more expansion and hiring in the months ahead. “In our view, so long as the employment situation continues to improve, we’re on the right trajectory,” said Thomas Villata, portfolio manager at Jones Villata Asset Management in Austin, Texas. If Big Oil continues to gouge consumers and industry, it’s possible corporate profits could dwindle. When the oil industry posted record profits during the trough of the 2008 recession, it showed that gouging consumers worked for the oil industry. Obama and Congress must do more to prevent a repeat of 2008, when oil and gas prices went through the roof. Low oil prices assure a brighter profit-picture for most businesses. Only the oil industry profits at the expense of most other businesses. If Friday’s jobs report continues to shine, the nation can expect the markets—and economy—to rise.
Looking at the big picture, it’s a bad investment to bet against the mighty U.S. economy. Unlike the Eurozone, the U.S. generates its own capital and controls its own destiny. All the talk of dumping the U.S. dollar as the world’s reserve currency in preference for the Euro or some concocted currency from the International Monetary Fund no longer looks viable or realistic. Whatever money the Federal Reserve printed to stave off another Great Depression, it’s well worth the price. Those economic curmudgeons, like GOP presidential candidate Rep. Ron Paul, that like to blame the Fed for everything but the kitchen sink, need to admit that Bernanke has done a masterful job of engineering a soft landing. Today’s solid growth proves that partisan politics have no place in U.S. economic policy. Without the bailouts and low interest rates, the economy would be nowhere.
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