Is the Recovery Stalling?
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The death of Osama bin Laden had investors in a pretty good mood yesterday morning. And well it should. It’s quite a victory to finally remove this scourge from the planet. And we might even anticipate something of a peace dividend from the removal of this terrorist.

On the flipside, the information coming out that elements of Pakistan’s security forces may have helped hide bin Laden is certainly not going to help matters.

*****Oil price initially dropped, but quickly rebounded. The dollar also enjoyed some upside. It will be interesting to see if oil, and stocks, can maintain their positive long term bias.

As I discussed Friday, we’ve gotten some economic data that is less than robust. Q1 GDP growth was just 1.8%. And the Fed has lowered its full year growth forecasts.

Bonds have rallied in response to slower growth expectations. And if that continues, it will threaten the rally for stocks. The fact that it’s May, and some investors may abide by the “sell in May” theory should also keep us on our toes.

*****April’s ISM Manufacturing survey slowed slightly, from 61.2 to 60.4. Anything above 50 signals expansion. But don’t miss the fact that the weaker dollar is helping drive manufacturing and sales abroad as U.S. goods are more competitive.

The chairman of the ISM survey even said “A lot of this growth in manufacturing is driven by export demand and the weaker dollar…”

This phenomenon helped Caterpillar (NYSE:CAT) post outstanding quarterly results. And the good times for companies like Caterpillar don’t appear to be anywhere near an end.

But let’s also not ignore the implications for domestic demand. If manufacturing is being driven by foreign demand, it suggests that domestic demand may not be as strong. And again, that’s showing up in growth numbers.

I suggested on Friday that we watch bonds and oil closely. We might also add retailers to the list.

Retail earnings start next week. We will want to see signs that consumer spending remains strong. We’ve already seen banks report lower revenue as lending has slowed. Let’s hope that trend doesn’t continue for the retail stocks.





Posted 05-03-2011 11:14 AM by Ian Wyatt