SOTU fails to stir. The Dow Jones Industrial Average has for the past couple of weeks settled above the technical and psychological resistance level of 14,000 and is now at its highest point since 2007. The Nasdaq, at 3,100, is at a 12-year high. The State of the Union address failed to scare the markets, not even the president’s talk about raising the minimum wage from $7.25 to $9 per hour. There are at least three reasons the president’s proposal is a non-starter. First, lots of people believe raising the minimum wage will cost jobs, especially low-wage, low-skilled jobs, and that’s where the economy is hurting the most. Secondly, and to prove the first reason, about a dozen states already have the minimum wage at or close to $9 per hour, and most of those states have high unemployment. So because of reasons one and two, there’s simply not enough support in Congress for it. And that’s reason number three.
M&A heats up. So the minimum wage is not going up any time soon, but one development we did see this week is increased activity on the merger and acquisition front. Warren Buffett’s Berkshire Hathaway said it would buy food company Heinz, but the merger that got the most attention was the one between US Airways and American Airlines. US Airway’s CEO Doug Parker will lead the combined entity, which will be the world’s largest airline and will retain the American name. The Heinz acquisition is actually a much bigger deal. The airline merger is worth about $11 billion, but the Heinz deal is worth more than double that. These deals reiterate something we talked about a couple of weeks ago: Capital is moving off the sidelines and back into the game. If this trend continues, it will create many more jobs and much more wealth than anything the president proposed during his State of the Union address on Tuesday.
Earnings finale. According to the latest Thomson Reuters data, of the 353 companies in the S&P 500 that have reported results, 70.3 percent have exceeded analysts’ expectations. Analysts are usually pretty conservative, so companies exceed analyst expectations more often than not, but this 70.3 percent number has been a positive surprise, and that’s one reason the markets have been up since the first of the year.
Jobs momentum continues. The number of Americans seeking unemployment benefits continued to fall. This week the Labor Department announced that first-time unemployment claims fell 27,000 last week to 341,000. Most analysts say that a level below 350,000 is consistent with steady job growth. California continues to be a trouble spot, though. Claims there were up 11,784. North Carolina, Tennessee, Alabama, and Michigan were the bright spots in this week’s report.