SP500 Levels, Refreshed: Bite the Bullet

The Thunder Bay Bull, our CEO Keith McCullough, is on the road in New York meeting with subscribers and walking them through our Q1 2012 investment themes.  Accompanying him is our Asia Analyst, Darius Dale, more of a bear, at least in body type, given that he is a former Yale offensive lineman.  (Unfortunately for him, he is also a Seahawks fan.)  As it relates the stock markets, we are neither bearish nor bullish, but merely trying to play the game in front of us. 


So, what has lead to this bullish shift.


1. Employment is improving on the margin – The most recent data point supporting improving employment is the regional and state employment survey from the BLS, which was released earlier today.  In aggregate versus the September data, 37 states saw their unemployment rates decline and 10 states saw their unemployment rates stay flat.  The national rate is 8.5% and 0.9% less than December 2010.


2. Europe is stabilizing – The key risk to global markets and global economic growth in 2012 was Europe’s deteriorating sovereign debt situation.  Clearly, Europe is not out of the woods, but the credit and intra-bank markets are much less stressed in Europe than they were a month ago.  The data point we highlighted this morning on our morning call (ping if you don’t have dial in information) was that the most recent Spanish 3 to 6 month bill auction was completed at an average yield of 1.847%.  This was a dramatic improvement from the last auction on December 20th that was completed at a yield of 2.435%.


 3. Growth is bottoming – A key data point for us in this regard is the price of copper, which we consider a leading indicator for global growth.  The price of copper is up 10.90% YTD and now bullish TRADE and TREND in our models.  The most critical factor driving copper pricing has been the acceleration of copper imports to China, which hit a new monthly high in December (up more than 70% year-over-year).


Clearly, many risks remain, but as the other eponymous Ontario native titled one his songs, sometimes you just have to “bite the bullet” and play the game in front of you.


Our updated SP500 levels are in the chart below.



Daryl G. Jones


Director of Research



  SP500 Levels, Refreshed: Bite the Bullet - sp.01.24


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