Tuesday, March 8, 2011

Bullish Fundamental Indicators

If the market continues to rally despite the turmoil in the Middle East, it will be because the US economic expansion is showing more signs of strengthening. The latest evidence of that is January’s survey of small business owners, as discussed below. Even more impressive is the recent vertical ascent of our Fundamental Stock Market Indicator, which has been very closely correlated with the S&P 500 for some time, especially during the current bull market. It jumped to 109.7 during the week of February 26. That’s a new cyclical high, and up 13.3% from 96.9 at the end of last year. Driving it higher recently have been the drop in initial unemployment claims and the continued strength in the CRB raw industrials spot price index. (We update this chart regularly for subscribers in Fundamental Stock Market Indicator Alert.)

The Small Business Optimism Index, which is based on 10 of the survey’s indicators, rose to 94.5 in February. That’s the best reading since the end of 2007, and well above the March 2009 low of 81.0. It is still well below readings of around 100 that were the norm during the good times from 1986-2006. However, that means that there is room for improvement, which is likely over the rest of the year. (We update this chart regularly for subscribers in Small Business Survey Alert.)

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