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August 2010 Monthly Economic Update
August 2010 Monthly Economic Update
For the stock market investor, last month was pretty lackluster – the DJIA suffered its first negative August since 2005, sliding 4.31% and struggling to keep above the 10,000 level.(source) Volume was remarkably light and skepticism permeated Wall Street. It was widely agreed the economy was crawling along: the impact of the 2009 federal stimulus was fading, and the government probably wasn’t going to ride to the rescue again. Businesses and consumers would just have to wait and hope. Yet as August gave way to September, some hope arrived: indicators showed an economy that appeared healthier than proclaimed.
July 2010 Monthly Economic Update
Dow Jones: @11,000 or @ 7,000?
July 2010 Monthly Economic Update
July 2010 in Brief
May 2010 Monthly Economic Update
May 2010 Monthly Economic Update
The month in brief. Stocks corrected, investors sighed, and Wall Street couldn’t wait for May to end. In performance terms, it was the Dow’s poorest May since 1940 and the S&P 500’s weakest May since 1962.(source) European debts hung like a dark cloud over the markets – and took attention away from earnings and some positive indicators at home. Domestic economic health. Consumer incomes outpaced consumer spending in April: while personal spending was flat, personal wages were up 0.4% and disposable incomes up 0.5%, and the savings rate increased half a point to 3.6%.(source) We also had a bit of deflation: the Consumer Price Index and the Producer Price Index each declined 0.1%. (Core CPI was flat for April.)(source) The unemployment rate kicked up to 9.9% for April, even as the economy added 290,000 more jobs (more in the government sector than private sector!).(source)
The twin consumer sentiment barometers showed monthly gains: the University of Michigan/Reuters survey improved to 73.6, and the Conference Board’s index hit 63.3, a level unseen since September 2008.(source) More concretely, we had April improvements in industrial output (+0.8%), retail sales (+0.4%) and durable goods (+2.9%).(source)(source)
The Senate passed its take on the financial industry reform bill 59-39 on May 20, with the next stop reconciliation with the House version passed in late 2009. That may occur during June.(source)
Global economic health. The whole world watched Europe, fearing that even as the EU/IMF plan to ease the debt burden on Greece, Italy, Spain, and Ireland got underway, it wouldn’t be enough. The 27 European Union governments have amassed debt equal to 80% of the EU economy.(source) The flashing red debt light naturally led economists to ponder the chances of a double-dip recession. German chancellor Angele Merkel’s mid-May opinion that the bailout effort had “done no more than buy time” didn’t exactly boost confidence within global markets.
How about Asia? Well, new tensions between North Korea and South Korea built in late May, adding to global financial concerns. Away from that, Japan’s household spending retreated by 0.7% in April (better than the -2.5% economists expected) and its unemployment rate reached 5.1%.(source) Manufacturing indexes in China, Taiwan, South Korea and Australia all pointed to further expansion in May (though the pace of expansion was slower than in April).(source)
World financial markets. There were actually some monthly gains in May – the Philippines All Shares Index advanced 1.0%, and Chile’s IPSA rose 0.6%. That positive news aside, sizable May losses occurred on multiple continents. The DAX fell 2.8%, Canada’s TSX Composite 3.4%, the Sensex 3.5%, the South Korean Kospi 6.0%, the Hang Seng 6.4%, the Bovespa 6.6%, the FTSE 100 7.1%, the Singapore STI 7.5% … and all of those indices did better than the Dow. Others suffered double-digit drops: Australian All Ordinaries, -10.3%; Spain’s IBEX, -11.1%; Russia’s RTSI, -12.0%.(source) The MSCI World Index lost 9.91% in U.S. dollar terms; the MSCI Emerging Markets index fell 9.18% in those terms last month.(source)
Commodities markets. So how did gold do given all this turmoil? Very well. Those futures gained 8.88% in May. The other notable NYMEX/COMEX gains: coal, +7.72%; milk, +7.59%; pork bellies, +6.30%; orange juice, +5.62%; silver, +5.15%. The major monthly declines included oil (-11.89%), gasoline (-12.46%), copper (-12.62%) and at the bottom, sugar (-14.47%). The U.S. Dollar Index gained 6.00% in May.(source)
Housing & interest rates. The numbers were influenced by expiring tax breaks, an expiring school year and warmer weather, but they were still encouraging: existing home sales rose 7.6% for April month according to the National Association of Realtors, and the Commerce Department had new home sales up 14.8% that month (and 47.8% above year-ago levels).(source) Pending home sales, affected by the same phenomena, were 5.3% higher in March and reached a five-month peak.(source) Housing starts increased by 5.8% for April, but the Commerce Department had building permits down 11.5% - again, an effect of expiring federal credits.
With no murmurs of the Federal Reserve hiking interest rates in the near future, average rates on assorted home loans remained low. In fact, they went lower. According to Freddie Mac’s Weekly Primary Mortgage Market Survey on April 29, the average rate for a 30-year FRM was 5.06%; on May 27, it was 4.78%. The average rate for a 15-year FRM went from 4.39% to 4.21% during that interval. As for 5/1-year hybrid ARMs and 1-year ARMs, the average rates for those home loan types in the May 27 survey were 3.97% and 3.95%. Compare that to 4.00% and 4.25% in the April 29 survey. With Treasury yields going lower last month, some called this the American silver lining to the European debt crisis.(source)
Major indices. The numbers tell a rather painful story, hopefully not to be repeated in June. The CBOE VIX rose 45.40% in May, the biggest monthly percentage increase since October 2008.(source)
| % Change | 1-Month | Y-T-D | 1-Year |
| Dow Jones | -7.92% | -2.79% | +20.62% |
| NASDAQ | -8.29% | -0.53% | +28.84% |
| S&P 500 | -8.20% | -2.30% | +20.13% |
| 10-Yr TIPS | +2.33% | -10.81% | -20.96% |
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
June outlook. Will the austerity measures and bailout package in the European Union inspire confidence? Will investors stop selling out of fear and buy with renewed confidence? Will the correction reach a point of capitulation soon? (Has it already?) Can certain European countries alter their financial behavior as well as their balance sheets? These are the big questions. Could a rebound start with news of a drop in the jobless rate, and further encouragement from other domestic indicators? There is plenty of bullish sentiment left in the tank – and there could plenty of volatility to contend with this month and this summer if the situation in Europe isn’t stabilized. Let’s hope that the market has witnessed a bottom and can return to rally mode.
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A Wild Thursday - May 6, 2010 - On Wall Street
A WILD THURSDAY ON WALL STREET
What’s the difference between “billions” and “millions”? About 650 points.
Did a mistake make a selloff more severe? The Dow Jones Industrial Average settled at 10,520.32 Thursday after a 347.80 loss, with fears over European sovereign debt affecting Wall Street. Yet the 347.80 decline was just half the story.
The Dow also saw its greatest-ever intraday swoon Thursday, diving 998.50 below the open at one point and taking an intraday swing of 1,007 points.(source)(source)
What happened? At this point, it looks like the same kind of thing that happened on Black Monday in 1987: technology and trading errors betrayed Wall Street.
April 2010 Monthly Economic Update
April 2010 Monthly Economic Update
If you don't know who you are, the stock market is an expensive place to find out.
March 2010 Monthly Economic Update
March 2010 Monthly Economic Update
The month in brief. Stocks rocketed north in March. The DJIA, NASDAQ and S&P 500 all advanced between 5.2-7.2% for the month.(source) Whispers about a double-dip recession, a possible correction and prolonged malaise in the real estate sector were not loud enough to take the market out of rally mode. Shouts of victory and shouts of anger accompanied the passage of the President’s long-envisioned health care reforms. Economically, slow and reasonably assured growth seemed the order of the day.
Domestic economic health. First the indicators, then over to Congress. March’s ISM manufacturing index came in at a very strong 59.6, and the ISM service sector index read 55.4.(source) Durable goods orders rose by 0.6% in February, the tenth advance in the last 11 months.(source) Data showed personal spending up 0.3% for February, even as personal wages were flat.(source) It was hard to get a fix on consumer confidence. The Conference Board’s index soared from 46.5 in February to 52.5 in March, even as the IBD and University of Michigan indexes fell.(source)
How Fast the Markets Recover
HOW FAST THE MARKETS RECOVER
A look at how the markets have rebounded through the years.
The stock market is amazingly resilient. You might be surprised at how fast the stock market can change … for the better. Let’s look at how the market has recovered remarkably – and quickly – from some notable downturns.2008-2009. The collapse of the subprime mortgage markets triggered a recession and made 2008 the poorest year for stocks since 1931. The Dow Jones Industrial Average fell 10% in June 2008 and fell 10% again in October 2008, losing 19.12% for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows with the S&P 500 at 676.53.(source)(source)(source)
Then the market took off. Investors who swore off stocks in early 2009 lost out on one of the great rallies. From the March 9 lows to the end of 2009, the S&P 500 soared 64.83% while the NASDAQ gained 78.87% and the Dow gained 59.28%.(source)
2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points to 8,920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.(source)
There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.(source)
As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.(source)
1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.(source) (That would be akin to a 2,400-point one-day drop today.) The S&P 500 lost 20.4%.8 By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.(source)
Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year.(source) By January 1990, the DJIA was at 2,800.(source)
If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later.(source) If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.(source)
1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October.(source) In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.(source)
So while the Dow, S&P and NASDAQ have been through some rough periods (and even a poor decade), the important thing is how they have climbed historically.
On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years.(source) This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.
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