Stock market investors are always closely looking at the economics indicators to decide between buying or selling a stock. Yesterday the Feds decided to keep the interest rate at 5.25%. Had there been any change in the numbers, the stock market would have crashed, the obvious reason being that most of the company’s earnings would go down if the interest rate increased. However that was not the case and Feds came out saying they wont increase the interest rate and the inflation is under control. This news resulted in a bull market. Lets look into some numbers which might give us some clue as to where the stock market is going.
- The U.S. economy surged forward with a surprising 3.5% growth rate in Q4 2006. GDP growth was 2% in Q3, and analyst had estimated 3% Q4 growth. That means the growth rate was more than anticipated. Good for stock market !!
- Consumer prices fell 0.8% in Q4 which makes it their first drop in 45 years.
- Disposable income was up 5.4%, and personal savings were up to -1% from -1.2%. That means Americans had more money to spend !! Again good for stock market !!
- Consumer spending was up from 2.8% to 4.4%. Again good for stock market.
Residential investments were down 19.2%. This is bad for the housing market and housing stocks.
Exports were up 10%, and imports were down 3.2%. This is excellent news. That means we are producing more and catering to world markets.
Government spending was up 3.7% including a 11.9% rise in defense spending, the biggest jump since the war began. This is not good for the economy as a whole, though its good for defense stocks.
Conclusion: Some numbers were positive and some were negative. However overall the economic indicators look good and we are looking at a good year ahead. Keep a close watch at the interest rates and inflation to understand where the U.S. economy and stock markets is heading.