Perspectives from Above the Noise – Week of March 11, 2013

3 Stories in the global economy that should not go un-noticed 

Markets made history last week as the Dow set an all-time high above 14,400 and the major indices all posted solid gains, buoyed by strong employment numbers and renewed confidence in the economy. The jobs report was the big market mover of the week, with employers adding a greater-than-expected 236,000 workers to their payrolls in February, and the jobless rate falling to a four-year low of 7.7%.

For the week, the S&P 500 gained 2.17%, the Dow gained 2.18%, and the Nasdaq gained 2.35%.

Here are the 3 stories this week that rose above the noise:

Americans Absorb Payroll-Tax Rise to Keep Spending: Economy

The U.S. economy appears to be re-accelerating in the first quarter, despite immediate headwinds including increased payroll taxes and scheduled government budget cuts. Consumer spending has maintained its upward trajectory, aided by a combination of decreased savings, faster employment growth, rising home values and stock prices that have reached a new all-time high in the U.S.

The rise in big-ticket purchases, including cars and light trucks, is an especially encouraging sign for the economic recovery. Auto sales were over 15 million annualized the previous four months, after failing to eclipse that level for nearly five years.

The Future for Luxury Car Sales in China Looks Bright

China’s passenger-vehicle market had its strongest start since 2010, rising 20 percent to 2.84 million units in January and February of 2013, according to the China Association of Automobile manufacturers. A recent article in The Economist looks at the luxury automobile segment in China and suggests the future is bright for sales to the world’s second largest market for premium cars.

It estimates that China will surpass the United States by 2020 to become the world’s biggest luxury automobile consumer. The surge is mostly due to the rising affluence of its private consumers, including women and younger drivers. According to consultancy firm, McKinsey & Associates, China will have 23 million affluent households with a disposable annual income of at least 540,000 yuan ($72,000) by 2020.

Growth and the Markets

One challenge for investors in recent years has been the seeming divergence between strong equity markets and generally weak economic growth. A blog post from The Economist.com’s Buttonwood blog presents some evidence that this divergence is not at all unusual.

Several studies are cited which indicate no statistically significant correlation between economic growth and market performance for numerous countries over long time frames. Although we believe a focus on macro issues plays an important role in risk management, the economic backdrop is ultimately only one piece to the investing mosaic and some of the statistics presented in the post make a good case that strong economic growth has not generally been a prerequisite for strong equity markets.