Good Morning. Up until just recently, the bulls' battle cry had been three simple words: "Better than expected!" In short, for the better part of the last month, the economic data for the good ol' USofA had been coming in above consensus expectations. To anyone paying attention to such things, this steady stream of strong reports suggested that the country's economy might actually be better than the bears had led everyone to believe. And as a result, stock prices have been adjusted to higher levels.
However, the string of better than expected data came to an end over the past week as the reports from the Chicago PMI, Case-Shiller, Personal Spending, and Consumer Confidence all came in on the punk side. And as one might expect, the discounting of stock prices to the upside also ground to a halt. Although the market
did not head lower in earnest, our furry friends assured us that it was only a matter of time before the dance to the downside, which had been put on hold since December 20th, would resume.
But a funny thing has happened on the way to bear party - a new bull thesis appears to have developed. Instead of focusing on the idea that the economy is going to continue to beat every economic report by a country mile ad infinitum, stock market investors appear to have figured out that growth is a good thing. Thus, it appears that the new mantra amongst the glass-is-at-least-half-full gang is "slow and steady wins the race."
It is important to recognize that the recent economic reports dubbed as "disappointing" weren't really bad reports. This data did not suggest a slowdown in economic activity or even a potential slowdown. No, the numbers were simply below analyst expectations. And while I will agree that this game is all about reality vs. expectations, at this stage of the game, growth is really the key.
My thinking here is pretty straightforward. Economic expectations for calendar year 2012 are not exactly robust as just about everybody who is anybody in the economic forecasting business has knocked down their projections over the past four months. So, as long as the recent string of "better than expected" data doesn't turn into a pumpkin at midnight, those same analysts might just have to start adjusting their expectations higher. Not by much, mind you, but higher all the same.
This, of course, leads to the issue of corporate earnings.