Monday, December 8, 2014
(This is Mark Vickery covering for Sheraz Mian, who is conducting interviews this morning.)
At first blush this morning, it would seem the imminent march toward Dow 18,000 contradicts soft data, especially overseas. With China’s trade levels continually slowing and new reads about Japan’s recession that are worse than expected — not to mention retail number in the U.S. that are less than stellar thus far this holiday season — it may be tough for investors (especially those whose default settings are naturally a bit bearish) to see just where the bullish sentiment is coming from.
Take McDonald’s (MCD) for example: the global fast-food chain’s monthly sales came out worse than expected this morning. In Europe and globally in general, Micky D’s is seeing comps down roughly 2%. Domestically it’s even worse, down 4.6% in November from a year ago. “But that’s just one company,” you might be saying. “And one that might still be out of step with modern preferences of the consumer near term.”
True, but McDonald’s is fairly ubiquitous, especially globally. It might be an exactly fair stock to apply to the case of difficult markets overseas these days. So how are we still talking about setting a record threshold for the Dow at 18K?
In a word: China. Despite weakening growth performance, China’s markets are still driving the bus. The Shanghai composite index is up 40% since mid-year, 21% in just the past month alone. Part of this success might be connected to the two-way trading between Shanghai and the Hong Kong index launched in the past month. Still, might this be counted as a one-time outlier?
Maybe, maybe not. With oil prices still seeking a multi-multi-year low and inflation still a non-entity in the U.S., investors still have reason to have faith in domestic equities. Plus, the global slowdown is helping keep interest rates low here at home. This refreshing lack of inflationary pressure is keeping outlooks reasonably sunny, even with retail not really filling the void so far like many observers had expected.
Pre-market indicators look toward a softer open, and Friday’s close failed to crack the 18K number on the Dow. Still, we’re looking pretty inevitable for record market numbers eventually, even if not today. With the holidays approaching, we typically also see lower trading volume.
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