I am in a great mood and you should be too!
What a beautiful day! I am on my way into the mountains of Pennsylvania to pick out a yellow lab puppy for the family. It's a beautiful day, my Yanks looked great last night, and how about our market! What happened to Armageddon?
I am feeling as good about the market, and all risky asset prices, as I did back in April. Last Friday's price action was truly technically perfect. Big down day Thursday, an event driven lower open on Friday, unemployment, and guess what - a higher close. What makes the performance even better was how perfectly long term support held in the S&P @ 1010. Subsequently, we have positive momentum that is rallying the market right back toward the FOMC highs. It is getting late in the year and the evidence continues to build that 2009 is a market performance replay of 2003.
Tremendous liquidity will remain in place for longer than previously thought. Expect that to translate into a profit driven rally. Yes, the earnings surprises are about to move from the bottom line to the top line. Sales growth will appear.
Some investment themes and thoughts:
The Royal Bank of Australia was the first among G20 nations to raise rates. That tells you commodities and natural resources are the place to be. The RBA's ability to raise rates signals resource demand from India and China. Australia is one of the world's largest commodity/resource economies - clearly in a growth mode. By the way, the commodity-rich economies of Norway, Canada, and New Zealand will allow their central banks to raise rates next.
Alcoa CEO Klaus Kleinfled, on CNBC's Closing Bell, was complimentary of the success of the stimulus package. What he left out was that the Chinese stimulus package was stoking his top line. Chinese aluminum demand was expected to have flat growth in 2009; however, due to the benefits of the Chinese stimulus package, that number will be north of 5%.
Now that natural gas prices are sustaining above $5, expect a shift in power generation back to coal. That has beneficial impact on railroads and industrial utilization.
It's time to stop looking at domestic vehicle sales. China has replaced the U.S. as the largest sales market. Vehicle sales in China are surging.
The fundamental rally in technology is not over. There is a $5 billion boost coming from the U.S. stimulus package for technology infrastructure.
Biotech will have a very active fourth quarter. Expect continued M&A activity, as big pharma searches for pipeline solutions. In addition, several FDA approvals are on tap.
Finally, when reading the Wall Street Journal, Financial Times or watching CNBC Fast Money, investors should be on alert for the major risk to this market rally - clearly, that is a shift in Chinese monetary policy where they begin to raise rates.