The Best of Kass
Among his posts this week, Kass discussed why recent economic data are consistent with not-too-shabby growth, why blame for the Facebook IPO mess should go to all the investors who scrambled to buy the stock, and why equities are undervalued.
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Originally published on Thursday, May 24 at 10:44 a.m. EDT.
It is important to recognize that the releases are consistent with real GDP growth of about 2.5%.
Let's review this morning's domestic economic data.
But first, despite some weakness, it is important to recognize that the releases are consistent with real GDP growth of about 2.5%, which is not great but not a disaster -- more of a muddle-through backdrop, which remains my baseline expectation, and given valuations today, arguably more than discounted in the S&P 500.
April durable goods rose by 0.2% (month over month), in line with forecasts, but much of the strength was in volatile aircraft orders. Adjusted for this, orders dropped by 0.6% compared to a decline of 0.8% in March and expectations of an increase of 0.8%. This and the core capex shipments data are consistent with sub-2% real growth in the second quarter.
Let's hope that the history of the first month of a quarter being weak followed by two months of strength comes true in the immediate future.
In contrast to weak orders, the May flash PMI was strong (53.9), though down from the previous month's 56 reading. This is consistent with better-than-2.5% real GDP.
Lastly, the initial jobless claims were in line and consistent of private jobs growth greater than 170,000 per month.
All in all, I continue to expect 2% to 2.5% real GDP growth this year in the U.S. Add on some inflation, and nominal growth will exceed 4.5%, which should translate into S&P revenue and corporate profit growth of 6% to 7% in 2012.
My expectations are now above the market's expectations.