BY RANDY LOVING, CFA
The question that every investor needs to ask when looking through data or reviewing a company is “am I more bullish or more bearish from having read this?”
Over the past few weeks we learned that retail sales continued to grow at a very strong 7.5% annual rate for the third month in a row. We continue to have strong employment and utilization of manufacturing capacity. Manufacturing capacity utilization declines prior to a recession, and it currently continues in an uptrend. Inventory at companies is low and continues to decline. Typically this leads to increased production or increased pricing. Both of which are positive for earnings and ultimately stock values. Even areas that are expected to weaken due to rising interest rates like the purchase of new homes rose 5% over last year which was better than what had been expected.
One risk to stock prices remains the availability of credit. In the bond market, the interest rates that a company pays when issuing a bond remains low. For companies that use bank loans, the availability of credit remains strong. The availability of low cost credit usually helps drive higher stock prices. One item that will change the cost of credit is the Federal Reserve’s current trend of increasing short term interest rates. The pace and length of the Fed’s increase of interest rates could cause tighter credit conditions and should be monitored.
Stock performance always comes down to the individual companies in the portfolio. The current economic backdrop is bullish and improving. We continue to watch credit conditions to see if one day they will change that.
The information provided is for illustration purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action to be taken. These analyses have been produced using data provided by third parties and/or public sources. While the information is believed to be reliable, its accuracy cannot be guaranteed.