The past two weeks were pretty quiet as the Thanksgiving holiday combined with conflicting economic data produced a stalemate on Wall Street.
As the charts above illustrate, renewed speculation about the Federal Reserve tapering at next week’s meeting caused the market to drift down until Friday when a
“better than expected” employment report sparked a rally.
For the week the Dow Jones Industrial Average fell slightly while the
NASDAQ Composite was flat.
The Markets & Economy
Very weak sales on Black Friday led to market weakness. This combined with various manufacturing surveys showing the US economy doing well in November caused uncertainty. Taper talk was in the air and then last Friday’s non-farm payroll report confirmed (if you believe this sort of data) that November continued to show an expanding economy albeit a slow one.
As the chart below indicates, the number of Americans with jobs is still down in absolute terms by over one million from seven years ago. That’s right ! Our Country’s population has grown by some thirty million people and yet fewer jobs are being filled.
What are all of the other people doing ? Welfare, disability, unemployment and illegal immigration accounts for much of the difference. Many of these are the result of bad economic policies emanating from DC. For instance, of the jobs being created in this economic cycle, the overwhelming majority are occurring in states with no state income tax or very low ones. What is the message from Washington DC ? They start up a debate about doubling the minimum wage. This would destroy even further the labor market for our young people who somehow are supposed to be enrolling and bankrolling the new Obamacare health system.
You get my point! This slow growth economy we have is not an accident, but is being caused in part by very bad policy choices and thus is not likely to get materially better (despite cheer leading coming from CNBC) until those policies change. Thus our view of a 2% GDP economy continues to be a realistic one.
On the other hand, the Federal Reserve Board would like to get out of its QE policy, but it is in a bind. First, it has a new and very dovish Chairman due to take over next month. She does not want to do anything to hurt the economy in 2014 when the mid-term elections are due to take place.
Fittingly, she cannot and will not risk causing a major hiccup to the stock market. On the other hand the data is neither improving nor collapsing, so the question is what purpose is now being served by this extraordinary policy. The answer is they simply are afraid to find out what a taper might do.
What to Expect This Week
Some economic data is due towards the end of the week, with retail sales being the most important. Income growth is anemic and it is showing in the early holiday season shopping numbers.
Tuesday brings the gathering of world leaders past and present to honor the life of Nelson Mandela in South Africa. This should keep markets quiet as well.
The real action will come next week when the Federal Reserve Board actually meets and tells us what they think. That will be the last big thing for markets to absorb in 2013 - a year which has surprised many given the strength in the stock market.
Finally, our look at the weekly economic indicators from the Economic Cycle ResearchInstitute (see below) shows more of the same. This economy looks like it is neither accelerating nor falling off a cliff. That scenario continues to be a good one for stocks.
SYMBOL: BA
Shares of Boeing continue to trade higher as Wall Street is really starting to warm up to the growth prospects of the Company. Several large brokerage houses raised their earnings estimates and price targets in the last few weeks, indicating that the fourth quarter is going better than expected at the aircraft manufacturer. Even though Boeing is one of the top performing stocks in the S&P 500 this year, we believe that several strong tailwinds will keep the shares moving higher for years to come
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The management team continues to ramp up its production outlook as new orders are coming in nearly weekly at the Company. Just last week the Company received an orderfor 17 more 737 airliners to add to its record backlog of over 4,800 airplanes. The Company remains on track to exceed its plans for delivered airplanes this year, and the fourth quarter earnings results should top even the most bullish analysts on Wall Street.
Not only is demand for Boeing aircrafts growing but business conditions continue to improve. States across the country are competing with nice incentive packages to bring new Boeing factories to states that have seen other industries leave over the past couple of decades. This should allow for management to continue to lower its cost structure and expand margins on all of its product lines.
We believe that Boeing is entering the sweet spot of its business cycle and investors will be rewarded over the next several years. Earnings estimates will continue to move higher for Boeing, as the Company turns its impressive backlog into earnings for shareholders. Boeing is growing its dominant global position in the aerospace market, and its competitors continue to fall further behind. We look for higher earnings to produce a higher share price and believe the price will reach $175 by the end of next year.
© McIntyre, Freedman & Flynn