After a wild ride in August the Dow ended the last day of August at 11,613, which puts in back in positive territory for the year. Following the Republican Tea Party debt ceiling extortion fiasco culminating the S&P credit downgrade of the US, coupled with news that the recession was worse than thought and continue concerns over Europe, confidence was shattered, falling to levels not seen since the midst of the great recession in March 2009. This confidence loss was reflected in the Dow tanking 2000 points and gold soaring to record levels. But despite the fact that confidence has not improved, the Dow in recent days has gained about 10% from its lows, and is back in positive territory for the year. Since confidence is a key driver of the economy, I am somewhat surprised by this bounce. So why are we seeing the stock markets rebound? Could be any number of reasons. Throughout this month, a bevy of generally positive economic reports for July showed that the economy was not nearly as weak as many feared. And other reports indicated that the dropped in the stock markets, which are now below their 1999 levels, coupled with strong corporate earnings, pushed the market P/E ratio to levels not seen since 1982 -- which was the start of a great bull run in which the Dow increase 12 fold over the following 20 years. This data signals a buying opportunity -- if you don't think the economy is going to tank in the next couple years. It's too early to tell the full effect of this loss of confidence, but early indicators for August suggest that the impact of this loss of confidence is muted, not what might be expected with such a loss in confidence. The weekly unemployment claims reports edged up a bit, but taking away the Verizon labor dispute, remained in the 400,000 range. ADP reported today that the economy added 91,000 in August, down from 114,000 added last month, but still much better than what might have been expected. The number of companies announced job cuts dropped to 51,114, down from 66,414 in July. Gallup's polls on consumer spending shows that consumers spent a bit less in August, but the 14 day current average of $68, but not catastrophically down from $75 in July. Hopefully these signals portend that the damage from the shattering of confidence will have a minor impact (hopefully, that is, for those not invested in failure for political purposes). The jobs report, which I think comes out on Friday, as well as report for August that come in during this month, will give a fuller picture.
First time unemployment claims fell and remained in the 400,000 level area last week: The number of first-time filers for unemployment benefits fell to 409,000 in the week ending Aug. 27, the Labor Department said Thursday. That's down 12,000 from a revised 421,000 the prior week. http://money.cnn.com/2011/09/01/news/economy/unemployment_benefits/ While that number is not great (though leagues better than during the recession) it is not reflecting a major increase in layoffs, as might have been expected with the huge drop in confidence following the debt ceiling extortion fiasco, a positive sign that hopefully we are not heading for another recession at the moment.
If the economy is on the upswing by fall of 2012, and unemployment down to a reasonable rate of say 7%, all the electoral hopes of the GOP will be dashed. So the Republicans won't be cheering the good news below. Unfortunately I don't know of any economist, even the most sanguine, who thinks the unemployment rate will be much below 8% by the end of 2012. But who knows, economies are nothing if not unpredictable.
I'm sure that thought was the furthest from their minds when they pulled the debt ceiling extortion stunt that shattered confidence. Economists tend to simply project current status. 4 months ago they were projecting good growth and falling employment this year. When data showed that the economy hit a soft patch earlier this year, they projected the economy would be sluggish. Three months from now if the economy is rebounding they'll be predicting a strong recovery, and if it is contracting they'll be predicting a slow down.
Dow ends crazy month back in positive territory for the year Not anymore it's not. http://www.bloomberg.com/apps/quote?ticker=INDU:IND http://daytradingstockblog.blogspot.com/2010/12/dow-jones-close-123110-stock-market.html BTW...if you put your money in the DOW on Jan. 1 - you would have made ZIP. If you put it on gold - you would have made well over 30%. http://www.goldprice.org/gold-price-history.html Just sayin'...
