Mark Levy’s Economic Update – Tuesday, March 5, 2013

This morning the Dow 30 Industrial Average is at an all-time high from it’s inception and is trading at 14,251, up 130 points for the day. CNBC is making a big deal about this event, but I encourage you to keep your investment emotions in check as after this impressive rally, there probably will be a pull back and we may see a range bound stock market for a few months to come. One reason the equity market rally may be limited is the American consumer is cautious.  In the 4^th quarter of 2012, outstanding consumer debt rose a slight 0.3% to total $11.34 trillion, according to the latest report from the Federal Reserve (Fed). But, to put it in context, total debt is still a way below its peak of $12.68 trillion in the third quarter of 2008 and, most importantly, has barely budged in the past couple of years. In general, consumer borrowing of all types including housing debt has been stagnant. Additionally, recently released economic data on consumer spending was weak (2% annual growth adjusted for inflation) and reflected no acceleration over the past year, and earnings reports from big retailers (such as Wal-Mart and Target) reflected lackluster consumer demand. This may not be any news to some, given the well-known weak income growth and hiring in the United States keeping a lid on consumer spending power and the added drain this year from higher payroll taxes and gasoline prices. So, why then is the Dow making new highs today? One reason is earnings. From the stock market low in 2009 to the present, S&P 500 corporate earnings have risen 128%. The stock market from that same low to now has also risen 128%. Even though consumer spending has been weak, consumer sentiment has not. Every measure of consumer sentiment (all of which are collected by the private sector) is at, or close to, five year highs. The improved sentiment is obviously a function of stronger equity markets, less volatility in financial markets, improved labor markets, the vastly improved housing market, and until recently lower prices for gasoline. My newsletters for the last 3 years have been predicting a rising stock market against a backdrop of slowly improving economic data. This has basically been the case. A pause in the rally would be normal here, but I still believe the bull market we are in has room to grow. You should all have received your tax reporting information except for late 1099’s that occur from time to time and K 1 reports. If you have any questions, do not hesitate to contact my assistant Rosemary Cowen, or myself.   – Mark The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  “Stock investing involves risk including loss of principal.  The Dow Jones Industrial Average is an unmanaged index and cannot be invested into directly.  Past performance is no guarantee of future results.”  References:   LPL Financial Weekly Economic and Weekly Market Commentary dated February 25, 2013 and Ivy Funds Weekly Market Update March 1, 2013.