The stock market surged Wednesday, September 1, and then it kept rising through Friday. Though we gave back some of that yesterday, the S&P rose a total of 5.25% in the first three days of September — supposedly the “worst month” for historic market returns. And it looks like we’re trending upwards today in early trading to continue that momentum.
However, September has fared especially well in mid-term election years, when the market tends to start a major rally in advance of the November elections. Last week, the market surged on improving sentiment and favorable economic trends. On Wednesday, in particular, we saw a better-than-expected rise in the ISM manufacturing index – a clear sign that the U.S. economy is not entering a “double-dip” recession. Then, on Friday, the stock market rallied in the wake of better-than-expected private payroll growth: The private sector created 67,000 jobs in August and a revised 107,000 jobs in July. Overall, the private sector has added jobs every month in 2010, while the government keeps shedding jobs – a favorable trade-off.
Manufacturing Output Beats Expectations
My choice for “stat of the week” usually reflects the indicator that has moved the market the most in the previous week. What really got the stock market excited on Wednesday morning was the Institute of Supply Management’s (ISM) announcement that its manufacturing production index rose to 59.9 in August, up from to 57 in July. Eleven of 18 surveyed industries reported improving factory activity. This surprisingly strong report buoyed the market, since it indicates no double-dip evident in manufacturing.
Friday’s job news seemed dismal on the surface – with more net job losses – but the revised increase in private sector job creation in July was very positive. Another Friday indicator of growing optimism for the U.S. economy was that August same-store sales rose 3.3%, with two-thirds of 27 reporting retailers beating analysts’ sales expectations. The big discount chains and apparel stores fared especially well, but luxury outlets (like Tiffany & Co. (NYSE: TIF) also improved. The analyst community was expecting same-store sales to rise 2.5%, so 3.3% was a pleasant surprise. This may boost third-quarter GDP expectations to 2% or higher.
Auto sales were admittedly dismal in August, but Ford (NYSE: F) is still on track to repay all its debt by the end of 2011, even though its sales fell 11% in August. As bad as that figure sounds, Ford’s sales beat General Motors, Honda (NYSE: HMC), Nissan (PINK: NSANY) and Toyota (NYSE: TM), which reported August sales declines of 25%, 33%, 27% and 34%, respectively. I should add that Ford’s sales in China rose 24% in August and Ford’s Fiesta model is a major hit around the world, and the Fiesta will soon be available in the U.S., for the 2011 model year.
Another piece of soft economic news was released on Friday: The ISM service sector dipped to 51.5 in August, down from 54.3 in July, but any ISM reading over 50 still signals growth. Offsetting a slowing service sector growth, the Conference Board announced last week that its consumer confidence index rose to 53.5 in August, up from 51 in July, which bodes well for increased consumer spending in September.
Global Economies Are Also Doing Better
The U.S. economy is finally catching up with the rest of the world. On Thursday, the European Central Bank (ECB) revised its 2010 GDP forecast in the euro-zone up to 1.6% from its previous forecast of 1%. ECB President Jean-Claude Trichet said the “very substantial” upward forecast revision followed a recent growth spurt that was “better than expected.” The EU’s biggest economy, Germany, is growing at a 9% annual rate, thanks to soaring exports. Germany’s success helped offset weakness in Greece, Portugal and Spain. Elsewhere in Europe, Sweden’s Riksbank raised its key-lending rate a second time, to 0.75%.
Higher commodity prices and strong worldwide demand are especially helping resource-rich economies. For instance, Australia’s second-quarter GDP grew at a 3.3% annual pace. Australia is also benefitting from strong household consumption, which is helping to boost GDP growth in the developing world, especially in Asia, India and Latin America, which are all benefitting from a growing middle class. India, for instance, just announced an +8.8% annual GDP growth rate but that’s only good for sixth place in Asia!
Here are the Top Global Growth Rates – according to The Economist, Sept. 4-10, based on Q2 year over year growth.
- Singapore +18.8%
- Taiwain +12.5%
- China +10.3%
- Thailand +9.1%
- Malaysia +8.9%
- India +8.8%
If you want to measure short-term growth, the fastest one-quarter growth rates (annualized) are in Latin America, led by Chile (+18.4%), Mexico (+13.5%), Argentina (+12.5%) and Brazil (+11.4%). This high-growth trend – led by Asia and Latin America – is now spreading to developed economies.
So in a nutshell, it’s not all doom and gloom this September – and a lot of data backs up that assumption.
Disclosure: As of this writing, Louis Navellier was recommending shares of Ford in his Blue Chip Growth newsletter.
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