Goldilocks revisited

by Laura Ehrenberg-Chesler on December 6, 2013

in Earnings,Economic Indicators,Energy,equity market,interest rates,Investment Strategies

Back in the middle of September, I posted a blog entitled “Not too hot, Not too cold” about the economy, and why the current economic environment bodes well for a continuation of the upward trajectory we have seen in the market.

Today, several key pieces of data were released, starting with a better than expected payrolls number, and a drop in the unemployment rate to 7%. GDP also came in stronger than expected at 3.6%, as did Consumer Confidence. In addition, average earnings rose, and the average workweek rose as well. While the data was a welcome improvement over past reports, it certainly could not be considered robust. For us at Crossvault it feels like the period beginning in the mid 1980’s, when the economy was improving from a deep recession, but had not yet become overheated or overly “exuberant”.

Interest rates immediately rose on the news this morning, but so did the equity markets. Even if the 10-year Treasury breaches 3% or 3.25%, it will not negatively impact the equity markets

in the medium term, if corporations continue to churn out good earnings and maintain healthy balance sheets, rates and inflation stay relatively low, and energy prices remain stable or continue to fall. We think the stage is set for another decent year in equities as long as the Goldilocks scenario remains in place.

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