A Subtle but Crucial Data Point


Posted in: Economics, General, Stock Market, Thought of the Week

Our Investment Committee has been saying for many months that they believe we are in a secular bull market for equities in the U.S., and new data has come out that further supports their thesis. The smallest stocks are rallying almost twice as fast as the large ones through third quarter earnings. Shares of small-caps have advanced 32% in 2013 compared with 19% in the Dow Jones Industrial Average, and the spread between the two is the widest for any year in a decade.

This is important because three out of the last four times small-caps outperformed by this much, the economy grew faster the next year and stocks stayed in a bull market for another year or more. The reason why small-cap performance is such a strong indicator is due to their dependence on an improving U.S. economy. Companies in the Russell 2000 generate 84% if their sales from the U.S. on average, compared with 55% for the Dow.

In addition, there are several other reasons our Investment Committee believes that the U.S. economy is in the early stages of a recovery for the following key reasons:

  • We recovered the fastest from the “Great Recession” of 2008, and now we are well ahead of the rest of the other developed economies in Europe, South America, and Asia. The speed of our recovery should continue to attract investment from every corner of the globe.
  • The companies that survived Great Recession learned their lesson and now operate at the most efficient levels in history.
  • We are witnessing the reversal of the outsourcing trends of the 1990s where companies were sending jobs to lower cost regions of the world. Companies are now bringing jobs back to the U.S.
  • Consumer spending accounts for 70% of our GDP, a measure of economic growth, and confidence is trending higher.
  • Technological advances in oil and natural gas extraction have unlocked vast reserves of energy below our feet. Cheaper domestic energy gives companies located here a cost advantage. Consumers pay less at the pump, and we could eventually become a net exporter of energy to other nations.

Our Investment Committee believes this is a great time to own U.S. equities and will continue to purchase securities for the long-term. Read this week’s Thought of the Week  to learn more about what is happening the U.S. economy and what the future may hold.

Click Here for the Weekly Thought

As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.