It is of little wonder that investors are tossing their hands up in the air when looking at investment performance or economic data, what look’s promising on the surface is fraught with danger below (like the oil spill?). Early week data regarding homes was mixed, as refinancing activity was strong (for those that can!), and industrial production was surprisingly strong. However, that was trumped by initial jobless claims hitting 500,000 this past week (the arbitrary line between economic contraction and expansion), while two Fed reports from NY and Philadelphia were both very disappointing. The Dow, after Tuesday’s close was up over 100 points, finished the week with a thud, down 90+ points and leaving a bad taste in investor’s mouths going into the weekend. The usually manic/depressive markets seem even more so of late leaving investors with a queasy feeling about the upcoming (usually) weak months of September and October. At this point of an economic recovery (it is one, yes?) there should be a bit more investors can point to showing strength. However, even at this late date, much of the data remains frustrating similar to a year ago.
When looking behind the headline numbers, last week was somewhat of an anomaly in that the OTC market (technology stocks) rose on the week yet more stocks fell than rose for the week. On the NYSE, the averages declined, yet more stocks rose on the week than fell. Interesting information, likely not signifying anything other than the week looked a bit better than the headlines. Some of the trends in the markets have yet to change, volume remains rather modest although it is rising on days when the markets decline. Many of the averages are trading below their very long-term averages (not a healthy sign), while bonds continue to rally. So while many of the signposts in the markets and economy are showing weakness, the averages continue to “hang in” – tension that is likely to be broken either by the economic figures improving or markets declining to meet the less than stellar economic/market numbers. Once Labor Day passes, we should see some fireworks.
The discussion of bubbles everywhere (from tech to real estate to stocks and bonds) is looking more like a Lawrence Welk’s bubble machine! From my way of looking at things, a bubble (and it’s ending) usually means investors not only lose purchasing power (adjusting for inflation) but also lose money, where the investment is well below (usually 50%+) initial purchase price. Those bashing bonds are making the same claims. Here it gets a bit fuzzy. While investors may lose purchasing power individual bond investors have locked in a certain positive return to maturity. Where the argument has some validity is for bond fund investors, as there is not a future certain maturity date, where declines in net asset value may never be recovered. Interest rates can’t go down forever and eventually they will rise, however we will need to see stronger and sustainable economic growth before that happens. So far, that day remains in the very elusive and uncertain future.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.
