Five Articles Describe Why Investors Can Now Focus on Growth, Not Risk

Tuesday, April 27, 2010

The economy is humming? It certainly looks like it. And that activity is spreading elsewhere. Here are five recent articles with selected quotes that underline what is happening and show that the US stock market hasn’t run ahead of the fundamentals.

1. Industrial companies pick up steam across the board…

New Orders Grease Profit At Industrial Companies” (The Wall Street Journal, by John Shipman/Paul Vigna/Bob Tita, April 21)

Higher profits and brighter outlooks at industrial manufacturers and shipping firms are casting new light on a budding upturn in America’s manufacturing heartland.

Improved orders and even a few spot-price increases are allowing these companies to deliver profits that beat year-earlier results and topped Wall Street estimates.”

2. Consumers regain their confidence – and step up spending…

Consumer Mojo Lifts Profits – Strong First-Quarter Results Prompt Firms to Restart Hiring, Raise Outlooks and Even Prices” (The Wall Street Journal, by Paul Vigna/John Shipman, April 26)

Consumers are spending again, delivering a strong boost to first-quarter corporate sales and profits, and prodding some companies to rehire laid-off workers and others to start raising prices again.”

3. Corporate combinations and investment banking come to life…

Next M&A Boom Looms, Says J.P. Morgan’s Lee” (The Wall Street Journal-Professional Edition, by Laura Kreutzer/Russ Garland, April 16)

“After a year of hoarding cash on their balance sheets, plenty of U.S. companies are gearing up for a spending spree.

“But just how big it will be depends on what happens in Washington, said James Lee , vice chairman at J.P. Morgan Chase & Co . (JPM).

“‘As you get more resolution of issues in Washington, we feel that the stage is set for an extraordinarily large M&A boom,’ Lee said during a keynote address at the Seventh Annual Private Equity Symposium sponsored by MIT Sloan School of Management.”

4. The stock market sees its fundamental base (earnings) exceed expectations significantly…

“Wall Street’s Missed Expectations” (The Wall Street Journal, by Liam Denning, April 26)

“Wall Street’s sell-side analysts are a famously Panglossian tribe. But it turns out that they are actually too pessimistic when it comes to predicting company earnings, particularly in the wake of recession.

With 172 of the S&P 500’s members having so far reported quarterly earnings, 143 have beaten their consensus forecast, according to data collated by Thomson Reuters. On average, their numbers came in 21% above the Street’s collective wisdom.”

5. And the coups de grace: The New York Times turns bullish…

From the Mall to the Docks, Signs of Economic Turn” (The New York Times, by Peter S. Goodman, April 25)

“At malls from New Jersey to California, shoppers are snapping up electronics and furniture, as fears of joblessness yield to exuberance over rising stock prices. Tractor-trailers and railroad cars haul swelling quantities of goods through transportation corridors, generating paychecks for truckers and repair crews.

“On the factory floor, production is expanding; a point underscored by government data released Friday showing a hefty increase in March for orders of long-lasting manufactured items. In apartment towers and on cul-de-sacs, sales of new homes surged in March, climbing by 27 percent, amplifying hopes that a wrenching real estate disaster may finally be releasing its grip on the national economy.

“After the worst downturn since the Great Depression, signs of recovery are mounting — albeit tinged with ambiguity. Despite worries that American consumers might hunker down for years — spooked by debt, lost savings and unemployment — thriftiness has given way to the outlines of a new shopping spree: households are replacing cars, upgrading home furnishings and amassing gadgets.

“Many economists estimate that consumer spending — which makes up some 70 percent of American economic activity — swelled by 4 percent during the first three months of the year, more than the double the pace once anticipated. Some have nudged upward their estimates for economic growth to more than 3 percent this year.”

So… We have reached the end of the “wait until the dust settles” period. The major worries, uncertainties and risks have been set aside, replaced by expanding activity and a focus on the future. For investors underweight in US stocks, there is no reason to remain on the sidelines. Like the old advertisement line, “Be the first on your block to own…,” now is a good time to get ahead of other investors in rebuilding your US stock allocation.

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