The result was a build up in inventories. There is evidence that the inventory correction in the old economy is well under way. The inventory to shipment ratio was unchanged in December from November's 1.36 though it was up from the 50-year low of 1.31 recorded earlier in 2000. Unfortunately, the inventories in the technology sector continued to increase until the end of the fourth quarter. The upshot is that the world's strongest and most efficient economy is growing at a rate below its potential.
Tax cuts are on the way.
The Fed has signaled that it will reduce interest rates further when needed. And economists have reached the conclusion that after some bumps in the road the economy will progress along a balanced and sustainable growth path. A key factor driving the decline in consumer and manager confidence may be the strengthening relationship that they have with investor confidence and the fact that the stock market gave back all of the gains it made in January. Any sign, whether economic or firm specific, which points to an economic soft landing leads to a recovery of stock prices. The irrational exuberance bubble has been burst, and the recent market pullbacks are setting the stage for a bull market phase in the latter part of the year.