Stock market undergoing digestion?

Finally found the time to visit The Big Picture.

After my previous post Economy peaking -- or is it?, reading Barry Ritholtz's post Seems Like Old Times? makes it clear to me that he considers the current stock market pullback "a mere period of digestion, and not the start of something more ominous".

So his conclusion coincides with mine after all.

Economy peaking -- or is it?

Barry Ritholtz's post That Don’t Impress Me Much was another insightful piece. I quite agree that the fundamentals suggest an economy near a peak, with economic indicators now "heading the wrong way".

The problem is that the technical picture is not so much unclear -- as he suggests -- but contradictory to the fundamental picture. His earlier post with the S&P 500 chart Chart of the Week: S&P 500 Index Fibonacci Retracement actually shows that although the market has retraced about 50%, there has not been a significant correction to that retracement. It's unusual to have a market complete a rally with just one huge impulse wave without any intermediate correction. This suggests to me that the bull is still alive, although it may be just taking a breather now.

If the market continues its rally late into the year, it either means that the economic strength is going to last longer than many think it would or that something else is going to compensate for a decelerating economy. Of the latter, higher corporate profitability and lower- or later-than-expected interest rate increases are two things that come into mind.

So announcements of the bull's demise may prove premature.

Inflation is back

All indications are that inflation is back.

Minutes ago, the US Labor Department reported that the CPI rose 0.5 percent in March from February, or 0.4 percent excluding food and energy. This follows a Commerce Department report of a 1.8 percent increase in retail sales for March, the biggest rise in a year.

The US data is only the latest indicator of a return of inflation. In Germany, consumer prices were up 0.3% in March from February. In Asia, Thailand's consumer-price index rose to a 33-month high of 2.3 percent in March compared with a year earlier, while in the Philippines, consumer prices rose 3.8 percent in March from a year earlier, the highest rate since late 2001. China's money supply as measured by M2 was up 19.2 percent in March over a year earlier.

The Monetary Authority of Singapore announced a tightening of monetary policy on Monday in an attempt to head off inflation. The Federal Reserve may have to consider doing the same before long.

Jobs rising, but outsourcing threat remains

The emergence of India and China as major sources of services and manufactured goods for developed countries has been much debated on. As explained in my article US job losses not that surprising, outsourcing has been a drag on job creation.

Recently, the economic recovery may be helping developed countries create jobs again, but the threat posed by outsourcing remains just around the corner. That is essentially the thrust of my article Outsourcing will continue to be a threat to jobs. And it's not just in the US. Singapore also faces the same problem, as elaborated in Singapore faces lower standard of living.

(see also Thinking About Outsourcing and Brad Delong On Outsourcing: A Commentary)

Some light on the contradictions on US jobs data

There have been some debate over which provides the more accurate and reliable measure of job creation in the US: the payroll survey or the household survey?

It's an important question because the household survey has been showing better job creation than the payroll survey.

Well, this post by Barry L. Ritholtz hopefully sheds some light on the subject. Using information provided by the Bureau of Labor Statistics, it suggests that the payroll survey is more accurate.

Which means that job creation has been weak after all, until the blowout March figure, that is. US sees surge in jobs, finally