US stocks: too high for their own good

Economic growth hardly justifies current recovery of share prices on US markets, analysts at Barclays Spain’s Pan-European Equity department said Wednesday in a timidly negative trading desk note.

In the short-term, it appears that the downward trend of capital allocation in all components of firm planned orders has fallen further, after figures began decreasing months ago. All three indicators generally used to check investment levels in capital goods converge towards lower grounds: from durable goods orders, to the capital assets component of industrial production, to durable goods shipments, numbers are shrinking.

US graph 1

But, why? At Barclays, experts suggest that the uncertainty of the election results. And there also is the threat of a “fiscal cliff”, a popular shorthand term used to describe the challenge that the US government will face at the end of 2012, when the Budget Control Act of 2011 is scheduled to go into effect.

Among the laws set to change at midnight on December 31 this year are the end of last year’s temporary payroll tax cuts (resulting in a 2 percent tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to president Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to be implemented.

Coming employment data could send a warning, as lack of investment would end up reflected in a poor hiring activity.

US graph 2

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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