Index Beating

By Joe Chase of IndexBeating.com

After moving up for five straight trading sessions, the equity market has given up some of its recent gains amid November’s weak manufacturing data.  The manufacturing index, which can be found at www.ism.ws, fell to a 26 year low.  It should not be surprising that the NBER (National Bureau of Economic Research) confirmed that we have been in a recession for a year.  Employment and economic activity peaked last December, which was also  the first in 12 straight months of manufacturers reporting declining numbers of new orders.

  This decline in the stock market only puts us back to where the market opened on Wednesday, and still 12% above the 11+ year low close on Thursday November 20th.  The market is very reactionary to the smallest pieces of news, and then goes on to forget about it the next day, except for that there is a 400 (or whatever it happens to be) decline built into the market.  I expect to see the market give back some of what it gained last week in the beginning of December, but I think the market is undervalued as a whole.  The F P/E for the Dow Jones Industrial Average is a mere 12.2, either stock prices will come up or analyst estimates will come down.

This chart follows the manufacturing index, which you can see took a sharp decline in the second half of 2008. (source: ism.ws)