Stock Market: Why The Economic News Is So Encouraging

Many believe that the next recession is lurking just around the corner. Quite the contrary, the news from the economic front show that the economies of the U.S., Asia, and even Europe, are gathering speed again. I reckon that the upswing of the global economy is sustainable and that it is just a matter of time before Dow Jones, S&P 500, NASDAQ and other stock market indices will reach new all-time highs!

The most impressive data came from the U.S.: In January, they added 243,000 jobs, the unemployment rate dropped to 8.3% (marketwatch). Germany, the leading economy in Europe, also reported a healing job market.

These improvements aren´t surprising. Since the last recession corporations are reducing their job force to squeeze costs out. Now it seems that hey have reached their limits in cost cutting. Companies are now "lean & mean" and have to hire again to respond to the growing demand amid the aspiring global economy, especially climbing exports to the fast growing emerging markets. In January the manufacturing indices from U.S., Germany, France, UK, China and India all sped up, showing an accelerating growth of industrial production (bloomberg) (drivebycuriosity) (telegraph.co.uk).

The new job growth (the U.S. created 1.82 million new jobs in 2011 and added an average of 183,000 jobs a month in the past five months) will boost the U.S. consumer expenditures in the coming months and strengthen the upswing of the global economy (via exports).

In January U.S. retail sales already grew 4.2% compared to last year (blogs.barrons.com). Especially shopping chains like Target,  Limited Brands (owner of Victoria`s Secret), Costco, Saks and Zumiez showed better than expected sales growth (bloomberg) (marketwatch). And the growth of the whole U.S. service sector (retailer, banks, insurance, health care, tourism, media and so on) accelerated sharply (calculatedriskblog.com).

The improving global economy will also boost the stock markets. Many, including the majority of the hedge funds and the large U.S. pension funds, are still too pessimistic and way underinvested (thestreet.com). They`ve  missed the rally so far. As the improving global economy will lead the stocks further upwards these investors will come under rising performance pressure and have to come back.