Sound Footing?

February 26, 2013

Capital expenditure leading indicators are in line with our expectation of faster capex growth this year. The lack of inflationary pressures supports continued monetary accommodation by the Fed this year. Housing should remain a positive force for growth in 2013.
-Mark Luschini, chief investment strategist, Janney


In this environment, equities remain a favored asset class. Growth in the troubled areas such as Europe and Japan is slowly stabilizing, while growth in the stronger spots such as the U.S. and China is beginning to pick up. While global economic growth is improving, it remains below potential (large output gap). Meanwhile, inflation is low or falling in most countries. Core consumer price annual inflation in Europe is a mere 1.5%, and Japan is still deflating. After a brief spike, food inflation in China is ebbing. Core inflation is only 1.5%, which is probably too low for a developing economy.
Consequently, central banks are well-positioned to maintain easy monetary policy with interest rates remaining low. Modest growth, low inflation, and low interest rates are very positive for corporate earnings and risk-taking.


  • The difference between the credit spreads, yield curves and central bank stances of today compared to 2007 when the market last reached new highs
  • U.S. Economic News – Inflation remains subdued while conference board’s leading economic index suggests continued growth
  • Global Market Conditions – He remains optimistic on global equities due to low labor inflation, economic slack and easy monetary policy
  • Cash on the sidelines can help fuel equities higher


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