Reviewing the recent economic data there has been little evidence that there is any change to economic growth either up or down. The Initial Jobless Claims report last Thursday showed a sizable drop in first-time claims, however, the December Consumer Confidence Index fell unexpectedly reflecting a nervousness among most Americans about the future. This coming week, December Existing (Tuesday) and New Home (Friday) Sales will be released. These important reports are expected to show continuing strength. The following week will have the all important first estimate of the 4th Quarter GDP (January 30th) and the January Employment Situation (February 1st). Both reports are expected to reflect the current plow-horse economy with no major changes.
As I indicated earlier, the NYSEBP closed Friday at a very strong 70.13. This move is significant because it broke a series of lower highs that had been in place since early 2012. It is important to understand that the NYSEBP may remain at elevated levels for many weeks and does not indicate that a sell-off or correction is imminent, only that the risk for such a move has increased. I remain very encouraged by the recent strength in this key indicator.
The Dorsey Wright & Associates analysis of the markets remained unchanged last week. Among the major asset categories, US Stocks are ranked first, followed by Bonds. International Stocks are in the number three position and moving closer to overtaking Bonds. Currencies remains in fourth position while Commodities is in last position. When Cash is included, Commodities falls to sixth place and Cash is fifth. Middle capitalization stocks are favored, as is growth over value, and equal-weighted indexes over capitalization-weighted indexes. Equal-weighted indexes are those where each stock in the index is weighted the same, while in capitalization-weighted indexes the larger stocks have the largest weighting consistent with their size relative to the other stocks. On a relative strength basis, the top three major economic sectors are unchanged: Consumer Discretionary, Health Care, and Financials. Industrials has risen to the fourth spot pushing Real Estate to fifth position. Information Technology has moved from sixth to eight as this sector continues its recent struggles. Energy and Utilities remain in the bottom two sectors. US Treasuries and International Bonds are favored in the Bond category, while US and Developed Markets are favored within the International stock category. Energy and Precious Metals are the favored sectors within the Commodity category.
My next Market Update and Commentary will be published in two weeks.