Last Thursday’s ADP employment report, which I’m always a bit skeptical of, showed a big surge in hiring. Also, ISM Manufacturing suggested that economic activity picked up near year-end. Car sales were strong, too, indicating that consumers are returning to big-ticket purchases.
What’s the bottom line? The U.S. economy remains one of the strongest across the globe, and it’s moving in the right direction.
Additionally, my reading of Vanguard manager letters in recent annual reports picked up one common theme: The high levels of cash on corporate balance sheets and low valuations are setting the market up for what could be a pickup in merger-and-acquisition activity in 2012.
Meanwhile, apartment vacancy rates are now at 2001 levels. People are renting, not buying. This could actually be a positive for the housing market. If everyone is already renting, there could be pent-up demand for homes. And we could see people return to the housing market, particularly as we see rents rise and home prices decline. Plus, 30-year mortgage rates are at record lows. The consumer, like the investor, often follows the trend when bucking it — buying rather than renting is really the better option at this point in time.
However, risks remain — particularly from beyond our borders, where Europe remains the catalyst for market sentiment. Spain sent the world markets a present of sorts on the last trading day of 2011, announcing budget cuts and new taxes — but also saying its 2011 budget deficit came in at 8% of GDP rather than the predicted 6%. And on falling GDP, that’s nothing but bad.
Finally, last week also saw tensions flare in the Middle East, sending oil over $100 a barrel — a reminder that a shock can come from anywhere, even if it hasn’t been on the media’s radar of late.
There’s a lot of 2012 still to come, of course, but at least for right now, things look optimistic.