· Manufacturing has staged a rebound.
o Monthly orders for new goods have expanded for four of the past five months.
o The ISM Manufacturing Composite Index has risen steadily since December 2008.
· Even the U.S. automobile industry has contributed to the rebound.
o Ford Motor Company has ridden “cash for clunkers” its first quarterly operating profit since first-quarter 2008.
Recovery drivers
· In the coming quarters, the main drivers behind growth in gross domestic product will be:
o Continued stabilization in the housing market
o Recovery in business investment resulting from the rebuilding of depleted inventories
· Consumers will not drive growth.
o In the near term: Personal consumption will lag for some time, as households grapple with tight credit conditions, high unemployment, and falling incomes.
o In the longer term:
§ Consumers must play a bigger role in sustaining a recovery.
§ The domestic housing market could face additional hurdles.
· The global economy is undergoing a seismic shift—away from growth fueled by debt-financed consumption; the next global growth drivers will be:
o Rapidly growing economies in Asia, Africa, and South America, which will produce the next generation of consumers and fuel prosperity for companies that serve them
o Industries like biotechnology, nanotechnology, alternative energy, and bio-agriculture, which are poised to solve the problems of today—and of tomorrow
So while it is easy for investors to fall prey to the concerns of the day, it is also essential to acknowledge, and also to invest in, a future that holds much promise.
Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25 percent of the total market capitalization of the Russell 1000 Index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin.
Authored by John Blood, CFA, CFP®, chief market strategist, at Commonwealth Financial Network.
© 2009 Commonwealth Financial Network®
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