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7 More Reasons Why 2012 is not like 2011…or 2010
By David B. Armstrong, CFA | Apr 16, 2012 | Weekly Market Commentary
You cannot find a magazine, blog, newspaper or TV commentator without a reference to 2012 being another 2011 or 2010 – especially with this recent market pullback. But, we have several reasons why we do not think that again, for the 3rd year in a row, there will be a double-dip recession. See our blog from last week for more details.
Last week, the small caps got hammered and as most of you know, we are over allocated to that sector. But that happens during a quick pullback.
For the week, the Dow Jones Industrial Average (DJIA) lost -1.61% to 12850, the Standard & Poor’s (S&P) 500 lost -1.99% to 1370, and the Nasdaq Composite Index lost -2.25% to 3011. The Russell 2000 Index, which tracks the performance of small capitalization stocks, lost -2.68% to finish at 796.
In addition to the reasons I outlined last week (housing is better, global short-term interest rates are declining this year and employment has been trending better not worse) there are several other reasons why 2012 is not shaping up for a double-dip:
1. Capital spending data is getting stronger.
2. Credit is expanding – slowly, but it is expanding.
3. The recent trade reports are showing that trade will not be a drag on 1st quarter GDP.
4. Mortgage rates are low and have decreased last week by 8 basis points to an average of 3.88%.
5. CPI was accelerating to a 5% pace last year on the back of surges in food and energy prices. That caused a drag on 2011 GDP. As of now, the Goldman Sachs Commodity Index is down -7.2% year over year, so far. Brent crude is down off of its peak price as well.
6. Vehicle production is up – big time.
7. Recent University of Michigan survey shows April employment should be stronger.
Could a double-dip happen? Sure, it’s a possibility. But is it a probability? Unless something unforeseen happens, we think the probability is very low.
As for earnings, this is the big week – so there will be a lot more to report on the topic later. As for last week, 27 of the 36 companies that reported beat the analyst’s earnings expectations. Said differently, 75% of the companies beat earnings estimates. That’s pretty good given that a lot of people are saying that earnings season was going to be rough.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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