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2011 is starting off with a bang. Stocks are up big
today. And the catalysts are coming from every angle. China’s
manufacturing index is expanding, despite measures to slow inflation,
Bank of America (NYSE:BAC) settled some of its mortgage put-back exposure, oil is higher
as growth expectations improve, price targets for Apple are higher, and
China has said it will continue to buy Spanish debt.
Each of these news items I’ve listed addresses an
important point of uncertainty. If China can grow its economy at the
same time it attacks inflation, then the global economy continues to
enjoy Chinese demand for raw materials. That’s a clear benefit for
resource economies like Australia
and Canada, and even benefits American
and German exports.
*****Bank of America‘s +$2 billion settlement
with Fannie Mae and Freddie Mac for mortgage-backed securities puts a
number on the outstanding risk for mortgage put-backs. You may recall
that when this issue came to light, some estimated the worst-case
exposure could be as high as $170 billion.
Bank of America has been the focus of the mortgage
put-backs, but it’s certainly not the only bank that could have exposure.
So the fact that it’s managed to put a number on this risk is good for
the financial sector across the board.
*****Oil prices are perhaps the most pure indicator
of economic growth expectations. Inventories and a rising U.S. dollar
don’t matter to oil prices when it looks as though growth will be better
than expected.
And with Goldman Sachs out today with higher
GDP estimates for
the U.S. economy,
it’s no surprise that oil is higher. We should note, too, that even
natural gas prices are higher today.
*****Good news for Apple (Nasdaq:AAPL) is good news for technology.
At a time when PC sales are lagging, Apple’s gadgets are picking up the
slack. In fact, one could argue that Apple is leading a shift away from
the PC to web-enabled products like the iPhone and iPad.
And given the relative value and convenience of
these gadgets, there’s a ton of upside for sales around the world.
*****Since China
is a major source of growth for the world economy,
investors pay intense attention to its every move. So when
China says it will
continue to buy Spanish bonds, despite the well-publicized debt issues,
it’s an important vote of confidence.
And we have to acknowledge China‘s savvy move here. It depends
on the global economy every bit as much as the global economy depends on
it. So when China goes right to the heart of problem and voices support for
Spain, it’s a good
thing.
*****Now, investors are clearly looking at the
bright side right now. In fact, they have been doing so for a few months.
And while there can be no doubt that the economic situation has improved,
there are still risks to growth.
Given that investors have been solely focused on the
upside, it would seem likely that the next shift in sentiment will be
toward recognizing risks, rather than further upside.
When will such a shift occur? Well, that is the big
question. The S&P 500 is in the midst of a strong support/resistance
zone between 1,260 and 1,280. With the S&P 500 approaching the upper
end of that range, we could see some more serious selling soon.
As I’ve been saying for the last couple of days,
have cash and wish-list of quality stocks ready…
Please send comments and question to [email protected].
Thanks.