The Great Recession in the review mirror
Three years ago Friday, the Dow Jones Industrial Average saw one of its darkest days. Closing at its Great Recession low of 6,547, investors cringed to see how far stocks had fallen from their October 2007 high of 14,164. Since that day, we’ve experienced one of the greatest three-year runs in the history of the stock market, superseded only by the dot-com craze of the late nineties and the recovery from the Great Depression.
Stocks have returned with remarkable resilience. Between the “flash crash” of May 2010, the European financial crisis, the downgrade of the U.S. credit rating by Standard and Poor’s, fear of default by the U.S. government, high gas prices, and supply disruptions surrounding the Japanese tsunami, it’s amazing we’ve made it to where we are.
When you look at both the climb we’ve seen and the challenges we’re facing, it’s not surprising that many analysts are calling for a pullback in the near future. Even so, stocks managed to hold their own last week. After a couple of rough days, Wall Street logged three winning sessions on the back of a better-than-expected employment report. The S&P eked out a gain of 0.1% for the week, while the Dow dropped 0.4%, and the Nasdaq gained 0.4%.
While Friday’s jobs report was hotly anticipated, the market’s reaction to it was surprisingly muted. The Labor Department reported that 227,000 new jobs were created while the unemployment rate remained the same as February’s at 8.3%. If so many new jobs were created, why is the unemployment rate the same? Well, while new jobs were created, the total number of job-seekers increased as more people began actively looking for work. When the job market improves, people who had previously dropped out of the hunt start applying for jobs again, affecting the unemployment rate. Clearly, while the employment situation is actively improving, we still have a long way to go.
Also supporting market performance last week was news that Greece succeeded in convincing bondholders to swap their old bonds for new ones valued at much less. In accomplishing this, Greece cleared a major hurdle to avoiding a disorderly default.
We are living during one of the most interesting times in history. Each week, as we analyze the stock market and the economy, we find both positive and negative factors to weigh when making investment decisions. We strive to do this with diligence and skill. All things considered, we trust that the same resilience that brought us to Friday will carry us into the future; even though there are sure to be bumps along the way.
ECONOMIC CALENDAR:
Monday: Treasury Budget
Tuesday: Retail Sales, Business Inventories, FOMC Meeting Announcement 2:15 PM EST
Wednesday: Import and Export Prices, EIA Petroleum Status Report
Thursday: Jobless Claims, Producer Price Index, Empire State Mfg. Survey, Treasury International Capital, Philadelphia Fed Survey
Friday: Consumer Price Index, Industrial Production, Consumer Sentiment
HEADLINES:
China has approved a $2.9 billion investment by 23 foreign institutions in its capital markets. As the Chinese economy shows signs of slowing, central bankers look to foreign investors to pick up the slack. China now has a total of $24.6 billion by 129 foreign institutional investors invested in its capital markets.
Crude oil futures rose past $108 a barrel Friday, buoyed by a good U.S. jobs report and positive news from Greece. Crude has risen from $75 a barrel in October and $96 a barrel last month on the back of rising tensions with Iran and positive economic news.
States that were hardest hit by the real estate collapse are now leading the U.S. labor market growth. Arizona, California, Florida, and Nevada accounted for 28% of the increase in U.S. employment between August and December 2011, according to Labor Department figures.
Credit Suisse is bullish on homebuilder stocks, behind the outlook is improved buyer traffic, record affordability, and improved buyer confidence, leading to increased activity in the housing market.
QUOTE OF THE WEEK:
“Determine what you believe is impossible, and then change your beliefs” Dr. Wayne Dyer
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