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Stock Market Faith in the North American Economy Remains Gratifying

0 3554 Market Intelligence

Three of North America’s major stock market indices had good months again in March. Dow Jones Industrials, the S&P 500 and NASDAQ all recorded new 52-week highs.

 

Three of North America’s major stock market indices had good months again in March. Dow Jones Industrials, the S&P 500 and NASDAQ all recorded new 52-week highs.

All three were also ahead on a month-end-closing to month-end-closing basis. The increases ranged from +2.0% for the DJI to +4.2% for NASDAQ, with the S&P 500 in the middle at +3.1%.

NASDAQ has been amazing. It’s up 125% versus its most recent low point, which occurred in February 2009 during the recession.

While not quite as dramatic, the other indices have also made significant gains over the same time frame, with the DJI +87% and the S&P 500 +92%. The Toronto Stock Exchange (TSX) has been relatively restrained at +53%.

The three U.S. indices have been doing great. Only Canada’s TSX has been out of sorts. On a month-end closing basis, March was down 2.0% versus February. The TSX was also 13.4% below its 52-week high, as recorded on April 6, 2011.

The TSX is closely aligned with the raw materials and financial sectors. With interest rates stuck near record lows for the foreseeable future, firms in the latter have been struggling to maintain profits.

With respect to the former, slowing growth in China has been weighing on commodity prices. Even copper futures have been less buoyant since Beijing announced growth this year is expected to recede to +7.5% from a seven-year stretch of +10.0% or higher.

At the same time, international tensions have provided lift to global oil prices. This usually helps bump up Canadian equity markets. The current situation is a little different than in the past, however.

There’s a greater recognition that higher oil prices – through their impact on already too expensive gasoline – may have a seriously detrimental impact on the world economy.

U.S. consumers, on average, are paying nearly $4.00 U.S. per gallon for petrol. That’s a significant benchmark level. On the West Coast, the barrier has already been demolished.

Prices are especially high in California, at $4.359 per gallon on average, according to the U.S. Energy Information Administration.

There are individual cities, in the East as well as the West, where the cost to “top up a tank” has exceeded $4.00 per gallon – Chicago, Los Angeles, San Francisco and Seattle.

The fact the U.S. has added over 200,000 net new jobs per month in four of the last six reporting periods has helped raise stock prices. Given the latest low numbers for weekly initial jobless claims, March is expected to be another strong month for the labor market report.

In further good news, the Institute of Supply Management has just reported that its Purchasing Managers’ Index (PMI) swung upwards again in March after falling in February.

The latest PMI is 53.4%. In February, the figure was 52.4% and in January, 54.1%.

A PMI in excess of 42.6% means the overall economy is expanding. According to that yardstick, the U.S. economy has been growing for the past 34 months in a row.

The PMI must be over 50.0%, however, for manufacturing to be expanding. It’s encouraging to note that the PMI has been above 50.0% for the past 32 months.

According to the ISM, and based on historical relationships, the current level of the PMI corresponds with a “real” (i.e., inflation-adjusted) increase in gross domestic product (GDP) of 3.7%.

The official figure from the Bureau of Economic Analysis (BEA) for U.S. real GDP growth in the fourth quarter of last year – the latest quarterly period for which data is available – was +3.0%.

Coming out of the recession, the U.S. has been regaining some of its “mojo” in manufacturing. The sector has created 425,000 net new jobs since January 2010. Year-over-year employment in manufacturing has averaged +2.0% over the last six months.

Durable goods, including motor vehicles sold domestically, plus airplanes and construction and agricultural equipment destined for export, have been among the winners.

Investors have been correct to be a little leery about Canada’s economy, as reflected in stock market prices. Industry-based GDP growth has been mostly mediocre in the last four months.

There was one large jump in GDP, December’s increase of 0.5% month to month. Otherwise, the percent changes have been 0.0% in October, -0.1% in November and +0.1% in January, the latest period for which data is available.

Some of the more interesting numbers in Statistics Canada’s January GDP report are the year-over-year changes in the sub-sectors.

While the all-industries figure was +1.7%, the largest percentage changes among sub-sector were recorded by accommodation and food services, +4.0%; retail trade, +2.6%; and, in a diminishing but still welcome echo of what is happening in the U.S., manufacturing, +3.9%.

Durables manufacturing in Canada advanced 7.0%.

Stock exchanges - performances of key indices - March 30, 2012
INDEX 52-WEEK LOW 52-WEEK HIGH YEAR AGO
(MAR 31, 2011)
MONTH AGO
(FEB 28, 2012)
Latest Month-end Closing Prices
(MAR 30, 2012
  PER CENT CHANGE,
LATEST VERSUS
52-WEEK LOW 52-WEEK HIGH YEAR AGO MONTH AGO
Dow Jones Industrials
NYSE (^dji)
Oct 4 11 10,362 Mar 16 12 13,332 12,320 12,952 13,212 27.5% -0.9% 7.2% 2.0%

S & P 500
NYSE (^gspc)

Oct 4 11 1,075 Mar 27 12 1,419 1,326 1,366 1,408 31.0% -0.8% 6.2% 3.1%
NASDAQ
(^ixic)
Oct 4 11 2,299 Mar 27 12 3,134 2,781 2,967 3,092 34.5% -1.3% 11.2% 4.2%
S & P/TSX Composite
TSX (^gsptse)
Oct 4 11 10,848 Apr 6 11 14,314 14,116 12,644 12,392 14.2% -13.4% -12.2% -2.0%
Sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: Reed Construction Data – CanaData.
Performances of key stock market indices
Performances of key stock market indices
*Each month/'s closing figure versus the February, 2009 closing figure for the index. February 2009 was the most recent trough for all 4 indices.
The Key Stock Market Indices are:
1) New York Stock Exchange - Dow-Jones Industrials (30);
2) New York Stock Exchange - Standard and Poor/'s (S & P) (500);
3) National Association of Securities Dealers Automated Quotations - NASDAQ Composite Index;
4) Toronto Stock Exchange - S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: Reed Construction Data – CanaData.
S & P/TSX Composite
Toronto Stock Exchange
S & P/TSX Composite
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Standard and Poor/'s (30)
New York Stock Exchange - Standard and Poor/'s (30)
NASDAQ Composite
(National Association of Securities Dealers Automated Quotations)
NASDAQ Composite
The charts show month-end closing figures.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Charts: Reed Construction Data – CanaData.

 

by Alex Carrick last update:Apr 3, 2012

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