Market Review & Outlook

A key economic statistic we will be watching to gauge the resilience and durability of the recovery is the nation’s ISM Manufacturing Survey. Yesterday morning, July 1st, the survey reading came in at 44.8, up from the prior month and basically inline with expectations. This survey is as strong a leading indicator for the economy and the stock market as any we follow. In general, a survey reading above 50 indicates the economy and production levels are expanding. So, while the economy is likely still contracting, it is at a lower rate than it had been. As long as the number stays below 57, we believe it makes sense to stay focused on the cyclical areas of the market that stand to benefit from recovery tailwinds as opposed to defensive areas that may play catch up once we’ve fully recovered.

Consumer confidence readings, on the other hand, ticked down in June to 49 from 55 in May and were below expectations. Higher gas prices and views on jobs being hard to get likely set the reading back a tad, even though it remains substantially above the all time low reading of 25 during the fall months. Fortunately, this series hasn't been a very good leading indicator for the economy or the stock market, so its level and direction is not as much of a concern.

The unemployment rate will likely increase in coming months but at a slower pace. We have long believed that the rate will peak in the 10% vicinity from its current level of 9.5%. While this may be bad news for those that are unemployed and looking for work, the indicator has usually been lagging in nature and reflective of the past rather than the future. Historically, stocks have often performed well during economic recoveries even as the rate of unemployment increases.

As you enjoy the 4th, take a minute to remember this country's revolutionary roots. Thugs and despots always stand in the way of freedom the world over. Unfortunately, it is almost a universal truth that the only way to gain freedom is to go through those that stand in its way.

In spite of all the well intentioned efforts to spread democracy and capitalism worldwide, it will only flourish if those who are poised to benefit the most from it also bear its costs and have a majority stake in the game. In an odd sense, this may be one of the few areas where traditional conservatism seems to be more liberal in its orientation. Welfare based independence simply doesn't and can't work over the long haul.

This is still the best country in the world, bar none. Sure, others are catching up, but I know of few Americans who are actually emigrating elsewhere. As other countries open up, competition increases and consumers on a worldwide basis benefit from improved standards of living. As China leads the worldwide economic recovery, perhaps we would be wise to recognize the role that broader based capitalism may have played in keeping a second Great Depression at bay.

Enjoy your 4th of July, be thankful for your independence, and remember above all, it wasn't free. Would you still fight for yours today?

(c) Broadleaf Partners

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