We all remember the children’s story of Goldilocks, the fair haired young girl who came upon the food waiting for the three bears. Her preference was for the porridge that was neither too hot nor too cold. During his tenure at the fed, Alan Greenspan coined the phrase “Goldilocks Economy”, an environment in which economic expansion is neither too strong nor too weak. We remain in a sluggish growth environment where for every 2 or 4 reports that suggest growth is accelerating, we see similar data suggesting we are not out of the woods just yet.
This past week is a prime example as we mull over the data. On Friday, we had a good February employment report. US payrolls added a more than expected 175,000 jobs in February, while the unemployment rate rose to 6.7% from 6.6%. Despite the awful weather, this was a solid report.
Corporate data has been strong as well. In the last months we have viewed the continued strong pace of Merger & Acquisition activity from household names like Comcast, Forest Labs, and Albertsons. The low interest rate, low inflationary environment is supportive of continued corporate expansion. Earnings have also been good, as we wind down fourth quarter earnings season; most companies are up 7-8% over last year at this time.
Back to our Goldilocks theme, not all the news is robustly positive. Last week, the Institute for Supply Management manufacturing index rose less than 2% and consumer spending rose less than .4% for all of 2013, productivity was up just 0.5%, the smallest gain since 1993. Retailers Radio Shack and Staples announced significant store closings by the end of the year and Costco’s sales reported weakness in overseas markets.
We are marking the fifth anniversary this month of the bottom of the market hit in March 2009. Since that time, the S&P has increased over 100%. This despite the financial crisis, Presidential elections, turmoil in European financial markets, government shut downs, and lastly unrest in the Ukraine. Our convention is that Goldilocks is with us for some time to come as the economy struggles to gain momentum. The signal to the markets is that the backdrop of favorable monetary policy and low cost of borrowing remains intact. Our bullish views on the market and US economy are as well.
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