The new bull market continues to rally today, with stocks surging across-the-board.
The Dow is up over 100 points at this writing, moving toward 9,300. The NASDAQ has pushed through the 2,000 level and the broad-based S&P 500 has run past the 1,000 mark with a 1.5 percent gain. This powerful summer rally adds to the early March rally, and it provides powerful new proof that we are in a genuine new bull market.
My thesis remains that free-market capitalism is more resilient and flexible than its detractors think. What’s more, the business sector has undergone tremendous cost corrections in the aftermath of the financial meltdown. This is where the new economic strength is coming from as the economy pushes ahead from recession to recovery in the third quarter. Market forces are pushing back against Obamanomics and the long-term spending-borrowing-taxing-and-regulating threats to our long-run prosperity.
This is predominantly a cyclical move in stocks and the economy. Today’s ISM manufacturing report tells the story. The overall index moved up to 48.9 in July from 44.8 in June, a much bigger-than-expected jump that signals 3 percent economic growth. (The first-quarter average for the ISM was only 35.9.) Inside the index, new orders have surged to over 55 while production has jumped to nearly 58. Order backlogs hit 50. Rising orders are a key leading indicator of better businesses, and that means stronger consumers.
Incidentally, banks are surging today in the market, another indicator of the recovery power of a zero short rate and a steep, upward-sloping Treasury curve.
Carmakers, meanwhile, are reporting better sales on the shoulders of the silly cash-for-clunkers program. The Wall Street Journal correctly calls it “crackpot economics.” Not surprisingly, numerous automakers appeared on CNBC today to tout the greatness of the clunker program. I asked the sales head of Ford if the company was really going to ramp up production in response to this temporary government giveaway. He wouldn’t answer. But he and his colleagues are all touting the program. You have to love it, the stupidity of it all.
Of course, clunker sales today will borrow from next year’s expected sales. But no one is thinking in those terms, and the Senate will surely put another couple billion of dollars into the program.
On the other hand, the new bull market is not a clunker. Nor is the gradual move towards business health. We’ll see if there’s any improvement when we get the jobs report on Friday. Optimistic as I am in the short-run, I acknowledge that declining jobs, hours worked, flat wages, and rising unemployment make up the Achilles’ heel of my bull-market thesis. Let’s wait and see.
Right now Wall Street is celebrating. We’ve waited a long while for good news. I like good news.