This week, the markets experienced their third biggest rally of the year. The S&P and the Dow were both up well more than 2%. Week-to-date, the markets are back in positive territory, and for the year, the markets are very close to positive territory.
The reason for the upswing is that there have been several points of good news coming out. Japan reported a growth in Gross Domestic Product of 1.8%; China has announced a 50% increase in exports, and the European Central Bank has raised estimates on growth going forward. Domestically, jobless claims in the United States are down 3,000 from the previous month; Pimco, a leading global investment management firm, is buying U.S. Treasuries again, and there is talk in Congress about extending the Homebuyer’s Tax Credit. Senate Majority Leader Harry Reid (D., Nev.) joined Sen. Christopher Dodd (D., Conn.) and Sen. Johnny Isakson (R., Ga.) in sponsoring a measure that would give buyers until Sept. 30 to close on sales that went into contract by April 30. This measure would be very good for homebuyers, as many are finding it difficult to close within 30 days.
Additionally, Federal Reserve Chairman Ben Bernanke indicated in his latest statements, following the release of the Beige Book, that interest rates would remain low, and that he is not concerned about inflation at this time. The Beige Book is published eight times per year by each Federal Reserve Bank on current economic conditions in its district. In the most recent Beige Book, every district reported positive news with production up and employment in good standing. It was an encouraging report, forecasting growth in GDP upwards of 3%. In Bernanke’s testimony, he alluded to the Fed Funds rate maintaining its current position and not increasing until late 2011 or early 2012. We feel he was suggesting that Congress needs to produce a plan to get our deficit in order.
Now the markets did experience a correction of about 13%—which is not a bad situation. The markets were up nearly 80%. Investors cannot expect the market to constantly rise. It is perfectly normal for the markets to have a correction of 15% once every two years. The investors who became scared and got out of the market made a mistake. They performed far worse than the market because they sold at the wrong time. They sold at, or near, the bottom. That said, we have always maintained that no man is worthless. He can always serve as a bad example.
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