The stock market likes to look forward, and the future is looking better for the global economy. Here are a few things to watch in the weeks and months ahead:
Continued Economic Growth
The Commerce Department recently announced its preliminary fourth-quarter GDP estimate was 2.8%, the fastest pace in 18 months. The report clearly illustrated the U.S. economy continues to improve but, due to the big distortion from inventory growth, the pace of GDP may decline in upcoming quarters. Plus, the Conference Board recently announced a full seven of its index of leading economic indicators were positive in December. So, while the economy might not yet be firing on all cylinders, it’s certainly revving up.
Consumer Sentiment Rising
Consumers are back to spending and becoming increasingly confident. According to the University of Michigan/Reuters survey, consumer sentiment is now at the highest level in a year, and consumers were much more positive about their current and future conditions. We’re going to continue to see sentiment and spending improve as a wonderful snowball effect takes place: The jobs outlook will improve and consumers will get happy. That causes people to spend. GDP rises. And more jobs are created — continuing the cycle.
The Fed is a bit of a party pooper with its forecast of just 2.2% to 2.7% GDP growth for 2012 and unemployment rates of 8.2% to 8.5%. However, the Fed plans to extend its current 0% interest rate policy through late 2014 — an 18-month extension from the Fed’s previous guidance that its 0% interest rate policy would continue through mid-2013. The good news here is that this will be a boon for the stock market, since the Fed is essentially telling investors to take their money out of banks and put it into the market.
The chief of the IMF recently warned the global economy could slide into a “1930s moment” unless Europe deals with its debt crisis and other economic powerhouses — such as China and the U.S. — fulfill their IMF financial obligations. In the meantime, while Greece argues about debt restructuring and further aid conditions, last week, Fitch Ratings downgraded its rating of Belgium, Cyprus, Italy, Slovenia and Spain. But although the financial stress within the eurozone persists, it is becoming background noise as investors focus on what is really important.
The final force that I expect will help lift the stock market is the November presidential election. Historically, the stock rallies right up to the November presidential election and actually does well for another 100 days or so after the election. So, if history repeats, business, consumer and investor optimism should steadily rise as the November presidential election nears.
With that said, here are the most important moves you need to take to be fully prepared for February:
Make a Move in Energy
- Establish a position in Eagle Rock Energy Partners (NASDAQ:EROC).