Markets in a Nutshell
July 26, 2010 Issue
An up week for the stock market. The Dow climbed 3.2% just about hit even for the year (down a scant 0.03%). The S&P 500 rose 3.6% and is down 1.1% for the year while the Nasdaq jumped 4.1% to return to positive territory for 2010, up 0.01%. The Dow has risen 7% since its most recent low (on July 1st ). Bonds are still posting solid gains for 2010 with the Barclays Aggregate Bond index up 5.8%.
The Conference Board released its widely watched index of leading economic indicators last week. The index, which is used as a barometer of future economic growth (or decline), was down 0.2% in June but is up 2.6% for the year signaling growth albeit slowing for the second half of the year. In case you were wondering, the index includes 10 components such as housing building permits, stock prices, and initial unemployment claims.
Fed Chairman Ben Bernanke spoke (testified) to the Senate Banking Committee and the House Financial Services Committee last week and said the Federal Reserve would step in and once again take action if the economic recovery appears to be faltering. As an article in the 7/23 Investor’s Business Daily reports, possible Fed action could be resuming purchases of government bonds (the Fed bought $1.7 trillion in 2009 and as my wife asked, isn’t the govt. just buying their own debt? Why, yes..) to drive interest rates lower. Lower rates makes it easier to borrow money (some would say isn’t that what got us into trouble in the first place?) and has a stimulative effect on the economy—kind of like drinking caffeine)..read on..
While most politicians are in favor of more action by the Fed and govt. in general (after all, elections are coming up), not all economists think it is such a good idea. Harvard economist Robert Barro, in an article in the 8/9 edition of Forbes, says that more govt. intervention scares away private investment (private investment in companies such as starting businesses and hiring people) as investors prepare for inevitable higher taxes to pay for the “stimulus.” Barro says less government spending and lower business taxes is a better solution to getting the economy moving again. I would say there is very very little chance of that happening soon! Look for more govt. in the years to come…