U.S. Market Outlook: The Good and the Bad

Some market commentary from JP Morgan from today:

Takeaway: The U.S. growth outlook is a little shaky, but not terrible- things could be worse.

The Good:
– Employee compensation (which makes up >60% of all household income) is perhaps the most important factor in improving growth outlook, and it is at 4.2%, a cycle high
– Payrolls report from Friday is encouraging in that payroll growth has remained above 200k for three months in a row now
– Rate of increase in payrolls seems to be accelerating
– Banks are increasingly willing to extend loans
– Solid profitability among U.S. companies is helping support the markets from a fundamental standpoint

The Bad:
– Last Thursday’s weak jobless claims number and non manufacturing ISM were weak, missing analyst estimates
– Growth in disposable income is vital in sustaining any economic recovery; however, energy prices are still high (even after the pullback in oil last week) and savings rate has been stuck at the same level

U.S. Recovery Sustainability Market Outlook

– Unemployment rate increased by 20bps
– Average hourly earnings, up 1.9% y/y, are not seeing much improvement
– Deleveraging (which, while it reduces risk, slows growth) continues to hurt demand
– Weak credit demand from consumers
– No real catalyst for increase in pace of demand growth

My conclusion: The uptrend in the market does not have strong support behind it.  In other words, there is no real, solid driving force behind it and none that will sustain growth.  That means that the market is very susceptible to headline risk, among other things.  Yes, the economy is showing some signs of recovery, but we’re still in shaky territory.  Thus, the move higher should be capped at some point.