At the close of the first quarter of 2013, it is clear that markets and investors are responding positively to several data points:
- The U.S. Commerce Department reports that consumer spending, which accounts for 70% of the U.S. economy, rose in February by the highest rate in five months. Although the gain was a modest 0.7%, the fact that people were spending more surprised many economists because payroll taxes increased by two percentage points in January. The expectation was that the tax increase would cause Americans to spend less.
- Personal incomes rose by 1.1% in February, and the overall U.S. savings rate managed to climb from 2.2% to 2.6% despite the increase in spending and higher taxes, according to the U.S. Commerce Department.
- J.P. Morgan Asset Management reports that household debt has fallen by 26% since the third quarter of 2007. The U.S. consumer has already de-leveraged to the lowest debt level since 1980. Less debt gives consumers some breathing room to spend, and they are.
- The National Association of Realtors reports that the average national monthly mortgage payment has fallen to $481.00. The last time monthly mortgage payments were this low was in 1998. The national average monthly rent for comparable housing is at an all-time high of $718.00. This differential between buying and renting continues to spur the housing recovery. Property values rose by 8.1% over the past year, the biggest year-to-year gain since 2006.
- According to a recent analysis by Sam Stovall, Chief Equity Strategist at S&P Capital IQ, gross domestic product accelerates at an average annual rate of 4.2% at the peak of the average bull market since World War II. The most recent GDP report shows that the domestic economy grew by a mere 0.4% annual rate in the fourth quarter of 2012. This indicates that the current bull market we are enjoying may have farther to run.
- Other characteristics of market peaks highlighted by Mr. Stovall included: unemployment below 5% as employers race to hire; 60% of investors say they are “bullish” according to surveys; and the price-to-earnings ratio for the S&P 500 jumps above 18. Today, unemployment is 7.7%; only 38% of investors say they are “bullish;” and the stock market’s price-to-earnings ratio in the last 12 months of profits is below 16.
These six positive data points argue in favor of further gains for stock market investors.