Market Lab Report – Premarket Pulse 6/1/15
Major averages fell Friday on higher volume as the economy contracted 0.7% in the first quarter though had also contracted in the first quarter of 2014. The contraction stemmed from a smaller inventory buildup and higher imports than preliminary data showed. Economists had expected GDP to be revised to show a 1% decline. That said, the economy has been showing signs of life as unemployment continues to fall, incomes rise, and home building picks up. Plus, the total volume of loans and leases from banks is now rising at the fastest rate in years. At the beginning of 2014, credit was rising at a paltry 3% annual rate, but now itâs growing at more than 10%. Most of the new lending is going to businesses, not consumers. Businesses are borrowing to fund their current operations and their expansion plans. Commercial real estate loans are rising. All good signs if the reports are be believed. Of course, if the economy is indeed turning a corner, this means the Fed will be more prone to hiking rates sooner than later which could cause a “taper tantrum” of which the Fed is aware. Since Yellen is dovish thus will need to see ample evidence of an economy that is truly on the mend, she will be slow to hike rates which bodes well for the QE-party goers. And history has shown that markets tend to correct typically a few to several months before the first rate hike. Rate anxiety manifests in markets ahead of the actual hike, which, history also shows, is often a bullish event for the markets as it signifies the beginning of a growing economy. Futures are up this morning after weak economic data in China encouraged investors that more stimulus will be forthcoming, leading to a rally in Chinese markets overnight. Despite the challenging environment, profits continue to mount. A few examples: +41.5% gain in SKX, members notified 4/22 at 74.8, current price: 105.87. +11.7% gain in MOH, members notified 5/8 at 65.12, current price 71.01. +12.6% gain in VRX, members notified 4/29 at 212.03, current price 238.77. +19.3% gain in AMBA, members notified 5/14 at 75.63, current price 90.21. That said, this is a singles market, not a home-run market. But as Gil Morales demonstrated last year, if you hit enough singles, you can rocket your account to more than 100% gains in a year’s time.