Figure 3. Retail Sales Bounced Back Over Past Two Months

Source: Briefing.com

• On a recent conference call, Fred Smith, the Chief Executive of FedEx, which is often seen as a bellwether of the economy, stated he does not anticipate further severe declines in the U.S. gross domestic product in 2009, although he expects economic activity to remain weak. He also indicated that he believed the company would "see improvement in the second calendar quarter here in 2009 from what we've been seeing, in terms of the big, deep red numbers." So again, nothing to necessarily write home about, but it is another incremental sign there may be some moderation in the downward pace.
• Similarly, in a recent interview, Jack Welch, former CEO of General Electric, who is now a partner in a private equity firm that is involved in a number of diverse companies from car rentals, industrial distribution, beauty, and food service indicated for the first month since last May, his businesses did not see sequential declines in business from January to February and that trend has continued in the early part of March. When he mentioned this subtle change at a conference, several CEOs in attendance later told him they were starting to see a similar stabilization, but they did not want to admit it. Their apprehension is understandable as it remains difficult to determine whether these trends are sustainable, and management has been burned in the past by being premature in their optimism.
• More encouraging, though, has been the strength in various commodities over the past few months, which are real time measures of demand and do not have the lags associated with various economic reports. Copper, which is often viewed as a leading economic indicator because of its use in a number of products - ­such as electronic goods, wiring of homes, plumbing, infrastructure and semiconductors - is over 40% above its December low as is Crude Oil.

Figure 4. Copper and Crude Oil Are Up More Than 40% from Their Lows

Source: SunTrust Robinson Humphrey, Thomson One

• The Federal Reserve is also taking steps to help stabilize the economy: it recently surprised investors with an announcement to spend $1 trillion-plus to buy Treasury and mortgage-related securities, which, in theory, should help lower interest rates (there is an inverse relationship between a bond's price and yield: as there is greater demand for bonds, prices increase, and interest rates decline) and improve the flow of credit. The intended impact is to reduce payments on consumer and business loans, which could lead to an increase in spending.
• Also, while there has been much debate about the longer-term benefits of the recently passed $787 billion fiscal stimulus plan, it should still provide a shorter-term positive impact later this year, which has yet to hit the economy. There are valid concerns, though, that all this borrowing and opening of the printing presses could lead to longer-term inflation problems. This is why the U.S. Dollar saw a steep sell-off and gold had a sharp gain following the Fed's announcement earlier this week.
• As far as the general equity market, the S&P 500's rally lost some steam around the 800 area (Figure 5). It is normal for stocks to consolidate or pull back after sharp increases, especially as they bump into historical resistance levels. Yet the rally thus far has shown very strong breadth readings - meaning a broad swath of stocks participating, as opposed to just a few names pulling the index up - which suggests this rally may have some staying power. After 800, the next resistance appears to be in the 850-875 area. Conversely, minor support appears at the 740-750 level.

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