The US Economy is Starting To Show Signs of Growth – 06/03/2013
The US share market has been rallying since last June with the S&P 500 index up 10% this year and
up 20% since June 2012. Investors over the last month have started to question the sustainability of
this rally after the Federal Reserve last month hinted that they would stop the printing presses (also
called Quantitative Easing #3). With a weak economic recovery, mixed company profitability, and
without the Fed pump priming the US economy many investors had started to think that the rally
may be over for the time being.
But the rally has continued. So what has changed?
Firstly, several Fed officials stated the appropriateness of continuing QE3 until sustainable signs
of growth emerged in the US economy, and now we see signs that the US economy is turning the
corner… albeit at a slow rate.
CNBC has reported today that a jobs report from payroll processor ADP showed that 200,000 jobs
were add in February increasing the pace of jobs growth by 23,000 more than the ADP’s initial
reports. This growth is expected to reduce the US unemployment rate from 7.9 to 7.8%.
Although the recently announced US budget spending cuts and tax increases will act to slow growth
by reducing government jobs growth, CNBC reports that private sector is expected to will offset
these job losses.
Investors are being buoyed by this news and buying shares on the expectation that the economy
in a year from now will be stronger, and subsequently so will company profits. This is further being
exasperated by the near-zero interest rates in the US that are forcing investors to move funds from
bonds to shares.
So, for not at least, the rally continues.
Value Investment Partners Pty Ltd is a Corporate Authorised Representative (Representative No.: 409849) ABN 72 149 815 707 of Sterling Managed Investments Pty Ltd, Australian Financial Services Licensee (AFSL 340744). This document has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this document is General Advice and does not take into account any person’s investment objectives, financial situation and particular needs. Before making any investment decision based on this advice, you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances.