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Posted by on May 4, 2009 in Economy | 2 comments

Glimmers of Economic Hope—Growing Brighter

This is the third or fourth (who is counting when you are on a roll?) in my “call-me-naïve” series on hope and optimism for our economy.

WARNING:

For professional and reliable economic and financial information and advice—albeit probably very depressing—please consult the real experts, here or elsewhere.

For rumors and “wishful” thinking on how our economy is failing, going to hell in a hand basket, please listen to Rush Limbaugh.

According to CNBC, on Friday, May 1: “Consumer confidence soared in April to its highest level since the September failure of Lehman Brothers. It also marked the first year-over-year increase in the indicator since July 2007.”

Among other data released Friday: “The Institute for Supply Management reported its gauge of the manufacturing index jumped to 40.1 in April from 36.3 in March.” And, “Traders have been encouraged by economic reports all week, including the drop in jobless claims Thursday and the paring of inventories in the GDP report Wednesday, which was interpreted as a sign that a build in inventories may be coming.”

And today, what a day at Wall Street! The Dow soared 214 points, or 2.6%, to end at 8426.74, the highest close since Jan. 13. The blue-chip benchmark has risen 29% since closing at a 12-year low of 6547.05 on March 9.

According to MSNBC:

Stocks rose on Monday, pushing the benchmark S&P 500 above 900 for the first time since early January, on bets that banks won’t have to raise as much capital as previously thought, and housing data fueled hopes that the recession is ebbing.

Pending home sales rise, while construction spending shows an unexpected gain.

Stocks advanced after the National Association of Realtors said pending U.S. home sales rose for the second straight month. And construction spending rose in March after five months of declines.

According to Reuters:

Pending sales of previously owned homes rose for a second straight month in March, while construction spending edged higher, according to reports on Monday that suggested moderation in the long housing slump.

The reports boosted U.S. stocks and lent support to the view that the recession, now in its 17th month, was close to finding a bottom.

“On balance, it’s an encouraging set of news. Pending home sales tell us, as far as the housing sector is concerned, we are getting near the bottom,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

A report from the U.S. Commerce Department showed construction spending rose 0.3 percent in March, the first increase in six months.

Other recent data showed the pace of decline in sales of new and previously owned homes was moderating while manufacturing was improving.

The pending home sales report added to evidence that sales have reached a bottom, said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

“That’s critical because once sales bottom, it’s only a matter of time before you work off excess inventories. That’s the key to stabilization in the financial system and the economy at large. We’re closer to that than people thought just a few months ago,” said Darda.

Public construction increased 1.1 percent after gaining 1.3 percent in February. Most of the boost came from state and local governments.

According to Bloomberg.com:

U.S. stocks rose, erasing the Standard & Poor’s 500 Index’s 2009 loss, after home sales beat estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.

“It’s like a snowball,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “It’s building with every favorable economic report that we get. That’s getting money coming out of cash and into riskier assets.”

Stocks have soared since March 9, with the S&P 500 advancing 34 percent, as investors speculated U.S. Treasury Secretary Timothy Geithner’s plan to finance the purchase of as much as $1 trillion in illiquid assets from banks will help end the recession. Equities were propelled by companies beating first-quarter profit estimates. More than two-thirds of the S&P 500 companies have exceeded analysts’ earnings projections.

Eight companies in the [S&P 500] index, including Whole Foods Market Inc. and Sun Microsystems Inc., have more than doubled.

Financial stocks in the S&P 500 have jumped 88 percent in the past two months.

David Kostin, a Goldman Sachs strategist, upgraded his rating on financial stocks to “neutral” from “overweight” today, citing the economic stimulus package and better-than- estimated results from banks during the first quarter.

“The economy has bottomed,” said Jerry Jordan, whose Jordan Opportunity Fund has gained 7.8 percent this year and counts the Financial Select Sector SPDR Fund as its largest holding. “The assets on banks’ balance sheets are better on the margin, and therefore these stocks have more value than people have been willing to give them.”

According to the Financial Times:

Tangible signs of revival in the global equity capital markets took place in April, with the amount of money raised through initial public offerings, follow-on offerings and, most noticeably, convertible bonds, reaching levels not seen since mid-way through last year.

Over the course of April, a total of 23 convertible offerings raised $3bn, more than 22 times the amount raised in March and the most raised in a single month through convertibles since July last year, when 68 deals raised $6.7bn, according to Dealogic, the data provider.

And, the Wall Street Journal

Markets have been marching higher for nearly two months, with the S&P 500 gaining 34% since hitting its bear-market lows in early March.

Bill Frejlich, a futures broker at Fox Investments in Chicago, said that there has been a marked change in investor sentiment.

“We’ve reached a point where the selloffs are short-lived,” he said. “Even if you get a downdraft, it lasts a week or so, then you get a new high because people are looking for entry points to the market.”

In another sign of the economic optimism sweeping trading floors, crude-oil futures settled at $54.47 a barrel, the highest level this year. Crude has gained more than 9% in the last four trading days and is up 60% from its 2009 closing low of $33.98, hit on February 12, 2009.

With stocks substantially above their worst levels for the current bear market, market watchers said that some investors were now feeling compelled to push funds into the market after missing out on the early part of the rally.

“If you’re one of the big bears out there, you really have to worry that you haven’t participated,” said Robert Pavlik, chief market strategist at Banyan Partners in New York. “You’re seriously underperforming at this point.”

And overseas, stocks were generally higher, with markets in Asia higher after improvements in Chinese manufacturing activity. Hong Kong’s Hang Seng Index was up 5.5%, reaching the 16,000 mark for the first time since mid-October. In Europe—in those countries where the markets were open—stocks also made some gains.

I still maintain that the glass is half full, and filling. Sorry, Rush.