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Never a Dull Moment

April 20, 2011 – 5:07 pm

A wild week in the stock market with a U.S. debt downgrade and surprising earnings strength from some tech companies pushed stock prices both up and down. This wild ride should settle down once earnings season comes to a close by month’s end. With that end investors will turn their attention to politics as our government wrestles over the debt ceiling and economic data points trying to gauge the strength of the economy.

No matter what goes on in Washington everything eventually boils down to the consumer. High oil and food prices are a drag on his wallet. A depressing housing market is a drag in his wealth and to combat those two upsetting
issues and a positive wealth effect for 401Ks and IRAs lifts the burden. The consumer is being pulled in so many directions it is hard to determine the course of the future. It appears the consumer is increasing their purchases
as evidence of the retail sales reports, but how much of that is for higher gasoline and food prices? The government will tell us that inflation on the core level is benign, and that is well and good, but the consumer does not live without eating and driving. Inflation is an issue for consumers and since they are 66% of the economy no one can ignore what affects them.

For the economy, the cash rich corporations are beginning to spend some of that money on capital improvements, (see sales of computers and peripherals this week) as well as merger and acquisitions. That bodes well not only for their companies but also for further economic growth. Also, jobs should pick up because of this spending and the more workers earning money means more money flowing into the system. It is a victorious cycle competing with the vicious cycle of inflation. Let’s hope corporate spending will result in jobs, thus more consumers.

It is always something, but for the time being things are looking positive. Wait until next week; that could change. There is always change.

Good Trading
Steve Peasley

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