Stocks ended last week at higher levels than just before the Japanese earthquake and tsunami. On the surface that might seem ridiculous. The nuclear situation in Fukushima seems to be stabilized but remains precarious, and a good portion of infrastructure in northern Japan was literally washed away. Supply chains that rely heavily on Japanese components haven’t yet felt the full impact of manufacturing disruptions. Yet steadily gaining stocks have now washed away the entirety of the knee-jerk sell-off.
A quick look beyond the news footage of the Fukushima reactor explosion might explain why. We blogged several weeks ago about the steady drumbeat of positive economic indicators (“Under the Radar: Good News You Missed” 3/4/2011). Back then, tensions in Libya and Bahrain and consequently higher oil prices were drowning out any and all “good news.” Shortly thereafter, coverage of the disaster in Japan again made it nearly impossible for any positive economic or financial news to see the light of day. Qaddafi has since promised a protracted fight with Libyan rebels, and the yet undefined American intervention doesn’t make a timely resolution any clearer. But just because the cameras are focused on these intense situations does not mean that things are any less exciting at, say, the U.S. Department of Commerce’s Bureau of Economic Analysis! (Keep reading!)
This wild and crazy bunch reported Friday that the domestic economy grew at an upwardly-revised 3.1% in the fourth quarter last year. That may not sound like much, but it’s not too far from the long-term historical average in the U.S. And it certainly keeps our forecast alive that the economy can finally achieve “escape velocity” and embark on a self-sustaining expansion. (We are forecasting 4% annualized real growth during 2011.) Add to that a smidge of perspective that the disruptions in North Africa, and now Japan, will have a relatively small lasting impact on global trade, and a number of other generally positive fundamental developments for the American economy, and it doesn’t seem so far-fetched that stocks are back in rally mode.
Last Thursday, initial claims for unemployment benefits edged lower again and seem to have definitively broken below a purportedly important weekly level of 400,000. House and Senate Republicans are taking serious aim at the anti-business aspects of the FinReg bill, and they continue mounting a full-out assault on Obamacare. The window for corporations to pre-announce lousy Q1 results is generally behind us, and we will soon have another look at what we believe will (again) be surprisingly healthy profit gains. If you listen closely enough, you might hear it. If not, we will surely write about it again soon!