The Economy is doing very well and should continue at 3% GDP rest of 2010Some of the best rallies come when everyone is scratching his or her head and can't figure out why it's happening. Last Wednesday on CNBC, a lot of analysts were telling us that this is just a flash in the pan. I didn't hear anyone say that it was time to get on board. I think the markets are in a terrific position.
How can things be getting worse when Canada just pick up 93,000 new jobs some 60,000 higher than the estimate.
As most investors know, investor sentiment is a 'contrary' indicator. That is, sentiment is at a high level of optimism and bullishness at market tops, and high levels of fear and bearishness at market lows. That is only natural. When a market correction is underway, investors naturally become increasingly pessimistic and bearish as their losses mount, so that by the time corrections end investor sentiment is usually at an extreme of bearishness.
While some methods of measuring sentiment, such as the Investors Intelligence Sentiment Index, and the VIX Index (also known as the Fear Index), are not at the high level of fear or bearishness they usually reach at market lows, the poll of its members by the American Association of Individual Investors (AAII) did spike up to a level of bearishness this week that is often associated with market lows. We consider that level to be when the poll reaches 55% bearish, and bullishness drops below 21. The poll's bullishness had been holding up surprisingly well until recently. While showing less confidence and bullishness as the market correction that began in April became more serious, three weeks ago the poll showed 34% were still bullish, and only 32% were bearish (the rest neutral). However, over the last two weeks of further market decline, bearishness increased to 42% last week, and spiked up to 57% this week, while bullishness fell to 24.7% last week, and only 20.9% this week. Those are in the range supportive of the market being at a low, not necessarily the low, but a low.
The June ISM non-manufacturing index, the employment component dropped only marginally and is consistent with respectable payroll growth. And the employment trend index was up for the 11th straight month in a row and it always leads payroll growth.
Jobless claims show solid improvement. Initial claims fell 21,000 in the July 3 week to 454,000 for the lowest level since early May. (prior week revised 3,000 higher to 475,000). The four-week average fell 1,250 to 466,000, the best weekly improvement since early May though the level is still slightly higher than a month ago. Declines are also seen for continuing claims, down 224,000 in the June 26 week to 4.413 million for the lowest level since November. Declines here reflect a mix of new hiring but also the expiration of benefits as the unemployed move out of the insured pool. The unemployment rate for insured workers fell 2 tenths to 3.4 percent. Thing are slowly getting better.
