Stocks touched an 18-month high Tuesday, based on the close of the S&P 500 Index. Moreover, two days of steady market rise has many asking why. What gives? Is the market happy for health care? Nope, that's not it. Keep reading...
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The Dow Jones Industrials Average rose nearly a point Tuesday, after grasping for a 0.4% gain on Monday. That does not seem like much of a move, or anything other than coincidental correlation, except for two important economic signals from early cyclical industries.
This latest copy of our report does not unearth any hidden market factor. We are not going to show you the gold that lies beneath the swamp this time around. The financial press has already pinpointed the driver pretty well for the world to see, though two weeks late. There are signs of demand for early cyclical industries.
Signs of demand for early cyclical commodities, semiconductors and steel, can pack a significant market pop, and so we just wanted to make sure you took notice. Now this evidence might not be reliable as a forecaster of sustainable growth (as evidenced in the choppy charts of semi stocks), but either way, I think the upward move in stocks could continue up to the pivotal first quarter GDP report, barring any other significant news. That Q1 GDP number seems more likely to us to soften, or to offer signs of softening economic growth from Q4 2009. We expect pundits will then bring more attention to the common economic back-step that occurs after the first few quarters of economic expansion, when inventory restocking is satisfied. This time around, panic caused retailers to manage bare bone inventory levels, and so the sharp burst in Q4 GDP as restocking occurred.
Back to the current relevant point for traders...
The Dow is already up 3.0% since Taiwan Semiconductor (NYSE: TSM) reported its February sales on March 10. More importantly, for those of you who noticed, and tell me if you did because you deserve some credit, on March 11, the company said it would be hiring 2,400 full-time employees to replace contract workers. That was in addition to the 3,000 engineers the company had already expected to hire.
As we all know by now, companies just do not hire in today's economy. So, it seems clear that Taiwan Semi is seeing some significant change in its marketplace; and Taiwan Semi's marketplace is an important barometer for the rest of the economy. Also, Taiwan Semi is an important player in the semiconductor market, and so we can infer industry demand from its operations. Taiwan's tech-driven economy is seeing declining unemployment and economic growth. While an earthquake may disrupt the company's quarter, that does not impact the signal its actions are sending regarding the state of the global economy.
In other news, a Brazilian steel maker raised prices yesterday, something that does not occur without demand as well. These early cyclical signals are understood by institutional investors, and cash seems to be moving into stocks as a result. The market is off fractionally today, and any significant economic data point disappointment could pull the wind right out of the sales of this signal. However, we may have something here worth noting for short-term trade and for long-term recovery. The medium term is what I'm worried about, so dynamic investment strategy is needed now.
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