A weak end to the week

(30 Jan) And month, for that matter.

We had the long-awaited fourth quarter GDP numbers released Friday morning and the result, while better than expected, was still nothing to write home about. The data showed a drop of 3.8% in the overall activity in the US. The intrepid economists had been calling for as much as a 5.5% drop. It was "better than expected" because inventories were higher than expected.

This was our worst GDP result since 1983 - the end of another bad recession. Interestingly, to me anyway, it's also the worst January for the markets since that same time.

Do you see any connection with the comparative timing of the two events? It may be coincidental that the markets had a great run after that low point. I think that the case can be made that this can be viewed as another indication that we're at or near our lows in the markets.

Earnings were, in Wall Street talk, spotty. For instance...

P&G sold more Folgers but less Tide - really. Stock went down. Exxon made more money for the year than any other company in the history of the country but, in the near-sighted ways of the denizens of the Street of Dreams, since the last quarter was down along with oil prices, the stock sold lower.

On the other hand, Amazon had its biggest holiday selling season ever and wound up posting the biggest gains of all the stocks in the S&P 500 for the day. PACCAR, the company that builds those big Kenilworth and Peterbilt trucks has results better that expected and their stock was up nicely as well.

Finally, the politicians could not seem to agree on how to price the "stuff" that would go into the bad bank(s) we talked about yesterday. Uncertainty rears its ugly head in bank stock land yet again, and down go their stock prices.

Some positive points for consideration

My whole premise for market optimism lies in the historic fact that these things are cyclical. The ups and downs are never the same in dimension or duration other than they show up - eventually.

So, Treasury rates are off their lows the lifeboat folks drove them to. Commodity prices, especially in metals and oil, are starting to tick up. The dollar has moved from life-support last summer over to providing that life support now. (Remember the talk last summer that the dollar was no longer the currency of choice for the world? Somebody spoke a little too soon, methinks.)

On top of all this, very little of the bailout money has begun to have any impact on the economy. (Given the pork factor in what the House let pass this week, it doesn't seem that that will be a source of any funds in the near-term due to the political arm wrestling.) When that begins to flow through and is turning over, that will help jump start us.

Back in 2002, the last time we had a market that was down like this, it took about 9 months to get from the market low (this one was around Thanksgiving) to the point when volume increased and the markets really started moving higher. So, we're close to three months in this cycle.

My point for the day

While the current numbers aren't totally great, neither have we slipped into a market environment that is outside statistical norms. Boring as that sounds, and as frustrating as it is to endure, it simply means that, based on the historical record, we're still in a position to transition higher from here.

Don't let the near-term noise overturn your long-term plans...