This is the most cogent argument for what has been a key supporting element to the US markets: Overseas economic strength. Even as the US decelerates, the overseas strength, driven primarily by China, but with growth in Japan and the rest of the Pacific Rim, as well as Europe, is maintaining the global boom.
We have discussed over the past few Qs exporters, who can sell into those markets, and take advantage of the weak US currency. That continues to be the greatest market strength out there — not so much their consumers, but their massive infrastructure development. And, as strong as the US markets appear, they continue to lag most world markets.
Barron’s Mike Santoli sums it up nicely:
"THE REST OF THE WORLD IS CARRYING THE U.S. STOCK MARKET.
Fast-galloping overseas economies, flush world capital markets and a
sagging dollar fatten multinationals’ earnings and furnish the fuel for
commodity-related stocks to surge.
That’s the takeaway from the earnings beats by Caterpillar (CAT) and Honeywell (HON) last week, the 22% jump in the Philadelphia Steel Producers index since March 5, the continued outperformance of foreign stock indexes, the seven-month high in copper and the run toward $700 an ounce in gold.
As a result, materials stocks are the new momentum
favorites, and more broadly, traditionally cyclical sectors are being
treated and valued as perpetual-growth vehicles — a process even
extending to sectors like railroads and utilities, now considered
implicit plays on the commodity-demand boom."
That makes a ton of sense to me . . .
The Fido Shuffle
Barron’s April 23, 2007