Growing Optimism About US Growth

After both, the Fed's decision to start a modest taper, and the upgrade of 2014 economic prospects by the IMF, stocks experienced a significant rally, writes MoneyShow's Jim Jubak, also of Jubak's Picks, and there may be more good news from Santa on the way.

Good news on consumer spending in November, Apple's (AAPL) iPhone deal with China Mobile (CHL), and an upgrade on US economic prospects in 2014, from International Monetary Fund's (IMF) managing director Christine Lagarde, pretty much guarantees that Santa will visit Wall Street this year. And just about on schedule. The Santa Claus rally is short and, in most years, sweet. It takes in the last five trading sessions of the old year and the first two trading sessions of the new. The average annual gain for that period, since 1972, for the Standard & Poor's 500 (SPX) is about 1.5%, according to the Stock Trader's Almanac.

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Besides whatever momentum US stocks had from their rally last week, after the Federal Reserve decided to begin the taper of its $85 billion in monthly asset purchases, with a modest reduction to $75 billion a month, stocks were bolstered Monday, by data on November consumer spending, that argues that the economy might be able to grow in the fourth quarter by, something like, the 4.1% growth shown in the latest revised estimates for the third quarter. In numbers released Monday morning, the Commerce Department reported that consumer spending grew by 0.5% in November, up from a 0.4% gain in October that was, itself, an upward revision from the originally reported 0.3%. The S&P 500 closed up 0.52% yesterday, and the Dow Jones Industrials closed up 0.46%.

Lagarde's comments on Monday added to market optimism about the US economy. The IMF, the managing director said, was raising its estimate for 2014 economic growth in the United States from its October estimate of 2.6% growth for 2014. Lagarde didn't give a new estimate-my assumption is that markets will have to wait for the next official update in April to see an exact number. But, as lacking in details as these comments were, they certainly didn't hurt the growing optimism about US growth in 2014.

And finally, while Apple's deal with China Mobile isn't an indicator for anybody besides Apple and China Mobile, the 3.84% gain in Apple's shares Monday, helped push an outperforming NASDAQ Composite Index ahead 1.08% for the session. That kind of gain for the technology—heavy index adds a little more end of the year buying motivation. China Mobile will begin selling Apple's iPhone 5S and 5C on January 17, with pre-registration for sales to begin on December 25. The deal will give Apple access, for the first time, to China Mobile's 763 million customers. News releases, so far, haven't said anything about pricing—and without knowing that, it's hard to estimate how many phones Apple/China Mobile will sell. But the deal is timed so that the phone will be available for New Year gift giving (New Year falls on January 31 in 2014), and that should result in decent prestige sales for even an expensive iPhone. (Apple is a member of my Jubak's Picks portfolio.)

The one fly-in-the-ointment Monday, came from the same Commerce Department data release that showed a healthy increase in consumer spending. Personal income rose only 0.2% in November. That was better than the 0.1% drop in October, but it still fell short of the 0.5% increase projected by economists surveyed by Briefing.com.

In other words, incomes aren't rising as fast as spending right now. That's not good news for the sustainability of the recent upswing in US GDP growth into 2014.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.