economy

Stock Market Greece Recovery

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The stock market is attempting to stage a recovery now that worries about Greece defaulting and abandoning the Euro have taken a back seat. Recent elections gave the political parties that favor adhering to the conditions of Greece’s bailout the majority of seats and a solid chance at putting together a coalition government. However, Greece isn’t the only issue out there. Recent employment numbers have not been stellar and few companies are issuing what would be called “enthusiastic” guidance for the coming year. The result is an odd stutter-step market that today (June 18) gave us a mixed day with the Dow slightly down and the S&P 500 slightly up. In the long run, the last few months of market action have been good. Runs in the straight up direction seldom end well. This period of consolidation even had some new outlets using the term correction, which is enough to scare off the faintest of heart investors that are often the cause of so much volatility. For long-term investors the fundamentals today are no different than they were a few months ago. The economy is growing, but slowly. Europe is being held together, but barely.

Will the Economy Recover in 2012?

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There has been a lot of good news about the economy in 2012. With each passing month, it seems that unemployment drops further, the stock market goes higher, and the housing market… well, that’s why there is still a pretty big question mark out there. Economy 2012 Outlook Typically, after an economic downturn, the stock market leads the way (it’s a leading indicator) by rising in the months before various economic reports (lagging indicators) start rising. If all goes well, the stock market’s rise, is legitimated by improving corporate earnings and then backed up by an increase in hiring that improves the employment outlook across the economy. Once these things happen, the U.S. economy kicks into gear and things march upward until the next correction, recession, or god forbid, depression. The stock market has gone nearly straight up since the beginning of 2012. Earlier this year the Dow went over 13,000 for the first time since 2008. Not far behind, the S&P 500 index passed its 2008 high-water mark earlier this month. And, as Reuters and other report, the number of Americans filing for new unemployment benefits dropped to a four-year low. This follows the last few months of good …

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Payroll Tax Cut Extended

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Yea! Just got news that Congress decided not to kill off the fragile economic recovery in the U.S., well, not yet at least. Congress has passed legislation that extends the payroll tax cut through the entire year. The tax cut was a 2 percent reduction in the amount of Social Security tax paid by workers. The employer part of the social security tax (and therefore a significant part of the self-employment tax) was not cut. However, this tax cut put additional money in the pockets of households across America. Letting it expire and seeing what happens when people suddenly realize their paycheck is smaller than they are used to would have been a big problem. Virtually every respected economist in the world warned that failure to extend this particular tax cut would have a big impact on the U.S. economy, perhaps causing the tepid growth to teeter, or plunge all the way back into recession. I’ll be back later with more details once I have a chance to comb through the actually bill on its way to President Obama’s desk.

Market Up on Good Economic News

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Just a quick update today: The stock markets ticked up today on a little bit more good economic news. Following recent good labor market news and the Fed holding interest rates at zero, comes statistics showing last weeks jobless claims were at a 3 1/2 year low. Also, several large companies reported good results. Furthermore, two regional business surveys from the Federal Reserve showed better than expected growth for December. Finally, the general business conditions index for New York was higher again showing an increase in both new orders and hiring. That’s yet more good news for the job market. We’ll have new articles about end of year tax strategies, financial planning for those in extreme circumstances, and more in the coming days.

Fed Keeping Interest Rates Low

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In an announcement that comes as no surprise, in large part because it has been repeatedly telegraphed by the the Fed itself, the Federal Reserve Board on voted on Tuesday to leave interest rates at their current near zero rates. The Fed further reiterated its commitment to doing so for the near future, pledging to keep rates low through at least the middle of 2013. There are several interesting implications for investors and consumers in the Federal Reserve’s actions and statements today. First, as mortgage lending continues to languish and be a rather slow and dour corner of finance, homeowners should take solace in the fact that there is no rush. While there is no guarantee rates will stay exactly as low as they are, the Fed’s continued commitment to low interest rates means that neither new mortgage interest rates or adjustable mortgage rates are going up any time soon. Second, the Fed announced that it would continue to implements the so-called “twist” in which the Federal Reserve is moving its short-term bond holdings to longer-term bond holdings in an effort to bring down long-term interest rates. Longer term rates are traditionally less influenced by the Fed, which sets only the short-term …

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Jobless Claims Continue to Fall

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New unemployment claims fell to a nine month low in October. This trend has been struggling to get going for several months now. However, the possibility of an improving job market is a good sign for the U.S. economy. Update: Consumer sentiment also rose. That is a little bit more good news for the economy. Unfortunately, the news isn’t anywhere good enough to declare an economic recovery. The “good news” about the labor market we have been getting for the last several months means more about the job market bottoming out than it does about it getting better. Essentially, if you were drawing a graph of the U.S. labor market, these last couple of months of good economic news and indicators means you can stop drawing your line down. It does not mean, however, that you can start drawing that line back up. There are two major stumbling blocks now to an economic recovery. The first is the very unstable situation in Europe. What once looked like a problem for a couple of the continent’s weakest economies now looks like a full-fledged crisis for the entire European Union. Any collapse, or loss of faith, there and the U.S. economy will …

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S&P 500 Equal Weight Index Not a Lost Decade

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Bloomberg has an interesting snippet about that so-called “lost decade” everyone keeps talking about. It turns out if you had invested in the stocks of the S&P 500 equally (equal weight) back at the market peak of March 24, 2000, you would have had a 66 percent gain through December 2, 2011, not a zero percent gain. Unfortunately, most people who invest in the S&P 500 Index do so in the same way the index is calculated, capitalization-weighted. That means that you buy more of the bigger companies and less of the smaller ones. There are some index funds and ETFs that allow you to invest in the S&P 500 Equal Weighted Index. There are actually numerous ways in which this was not a lost decade for investors, most importantly, if you KEPT INVESTING, which is what both savvy and not-so savvy investors did when they did not turn off their 401k contributions through this turbulent decade. Those investors could have much more money today than the beginning of the decade and are primed for a much bigger recovery when the U.S. economy finally pulls out of its doldrums and moves ahead. More on this later…

Economy Growing Slowly – Inflation Benign

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The U.S. economy continues to grow at a very slow pace according to the Federal Reserve’s Beige Book. That isn’t good enough considering how deep the current recession is. At this rate, growth back to anything resembling an expansion would take a very long time. However, the good news is that the economy isn’t getting any worse for the time being. The Beige Book is a summary of the current state of the U.S economy across all of the Fed’s districts and for the most part, all reports are of "modest" or even "slight" growth. Inflation Not Happening It seems that the highest "street cred" a Fed banker can have is to be an inflation hawk. Since 2008, however, inflation hawks have actually been Chicken Little’s. With the economy growing very slowly and many Americans still out of work, it’s hard to see where inflationary pressure could come from. The just released Consumer Price Index (CPI) just confirmed that there is no real inflation anywhere to be found in the economy. The index rose just 0.1 percent. Prices excluding food and energy, both traditionally volatile pricing sectors that seem to move of their own accord rather than in step with …

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2011 Stock Market Update Q3

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The third quarter just closed on September 30th and it was not a pretty sight for short-term investors. The S&P 500 closed at 1,131.42 which is down 14 percent for the third-quarter. It started the year by opening on January 3rd (the 1st and 2nd were Saturday and Sunday, respectively) at 1,257.62.  That is a drop of a little over 10 percent year to date. The Dow Jones Industrial Average is off 5.74 percent year to date. The stock market took a huge dive starting July 21st and has never pulled itself back up. For those of you looking for the culprit, let me help you out. The debt ceiling deal was reached at the end of July, which means the 21st was pretty much the height of the shenanigans. The markets have had no truly good news since to pull themselves back up by. Outlook for 2011 4th Quarter Stock Market Don’t expect the news cycle to save the stock market during the fourth quarter of 2011. In the 4th quarter, we’ll see increasingly competitive rhetoric building in the Republican Presidential primary, the product of the debt ceiling committee, which most are projecting will fail, and the start of …

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Can The Fed Really Be Treasonous?

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Recently, newly official Presidential candidate Rick Perry suggested that it would be "treasonous" for Ben Bernanke and the Federal Reserve to "print more money" in order to play politics. If you want the political dogfight over the comments, check your regular media outlet. However, the comments highlight a fundamental misunderstanding that most Americans have about the Federal Reserve Board and its power over the U.S. economy. Before we get into that, however, it seems that there is a glaring lack of logic in both Mr. Perry’s comments and the media reaction to them. If the Fed can fix the economy to such an extent that the recovery might alter the outcome of the election, whenever it chooses to do so, wouldn’t it be more treasonous to not be doing it right now, or say, six months ago? In other words, if just turning on the printing presses would make a meaningful improvement to the economy, shouldn’t (wouldn’t) they be doing it right now instead of letting the U.S. economy stall, its citizens suffer and allowing other countries to gain strength at America’s expense? The Fed’s Real Power The truth is that "printing money" or other fiscal stimulus can only accomplish …

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