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Global Markets Driving the Dow

Posted By Barry Ritholtz On April 21, 2007 @ 8:17 am In Currency,Economy,Investing,Markets | Comments Disabled

This is the most cogent argument for what has been a key supporting element to the US markets: Overseas economic strength. Even as the US decelerates, the overseas strength, driven primarily by China [1], but with growth in Japan and the rest of the Pacific Rim [2], as well as Europe, is maintaining the global boom.

We have discussed over the past few Qs exporters, who can sell into those markets, and take advantage [3] of the weak US currency [4]. That continues to be the greatest market strength out there — not so much their consumers [5], but their massive infrastructure development. And, as strong as the US markets appear, they continue to lag most world markets [6].

Barron’s Mike Santoli [7] sums it up nicely:

Fast-galloping overseas economies, flush world capital markets and a
sagging dollar fatten multinationals’ earnings and furnish the fuel for
commodity-related stocks to surge.

That’s the takeaway from the earnings beats by Caterpillar (CAT) and Honeywell (HON) last week, the 22% jump in the Philadelphia Steel Producers index since March 5, the continued outperformance of foreign stock indexes, the seven-month high in copper and the run toward $700 an ounce in gold.

As a result, materials stocks are the new momentum
favorites, and more broadly, traditionally cyclical sectors are being
treated and valued as perpetual-growth vehicles — a process even
extending to sectors like railroads and utilities, now considered
implicit plays on the commodity-demand boom."

That makes a ton of sense to me . . .


The Fido Shuffle [7]   
Michael Santoli
Barron’s April 23, 2007

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/04/global-markets-driving-the-dow/

URLs in this post:

[1] China: http://bigpicture.typepad.com/comments/2005/11/china_by_the_nu.html

[2] Pacific Rim: http://bigpicture.typepad.com/comments/2006/05/malaysia_taiwan.html

[3] advantage: http://bigpicture.typepad.com/comments/2007/04/euro_strength_v.html

[4] weak US currency: http://bigpicture.typepad.com/comments/2007/04/us_dollar_index.html

[5] consumers: http://bigpicture.typepad.com/comments/2007/03/exports_versus_.html

[6] lag most world markets: http://bigpicture.typepad.com/comments/2007/04/q1_2007_global_.html

[7] Barron’s Mike Santoli: http://online.barrons.com/article/SB117692031435174346.html

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