The current environment is poor (but that is already factored in), and the outlook is far from being clear (also factored into prices/valuations). It remains popular to forecast economic weakness, but numerous “green shoots” suggest improvement. The list of important positives is long, including lower oil prices adding discretionary income to household budgets, massive inventory liquidation in manufacturing, declining and low inventories of housing (except in a few distinct markets), large government fiscal stimulus packages, low interest rates, and ongoing recovery in credit markets. These positive developments are already reflected in small increases in consumer spending and an end to the decline in new home construction and sales. Unemployment claims appear to have slowed. Consumer confidence has increased. It is a good start.
If the recent gains build, economic growth should resume by summer, which is implicit in the recent stock market rally. Indeed, the market rally implies that investors, collectively, believe that an economic recovery lies ahead (even with more projected job losses). What is one sector that we should watch that would suggest an economic recovery is underway? If we had to pick one sector it would be shipping. Look no further than the ETF “$SEA“. If SEA continues to advance and outperform the DOW on a relative basis a strong case can be made for the market factoring in a “sustainable” global economic recovery:
The graphs above are rather interesting. It appears that $SEA is about to break to a multi-high in its own right and also relative to the Dow. A very powerful “world growth” signal is suggested if SEA breaks to multi-week highs. We like the following shipping stocks: $DRYS, $CHK, $DSX, and $TDW
