June 1st, 2010 11:31 AM by Nick Rapplean
Though we can easily discern the footprints of the European debt fiasco all over the market data from last week, it has become very hard to find a trend or predict the future with even the slightest confidence.
For example, the yield for the 10-year Treasury remained low last week, yet it managed to edge back up to 3.303% at the Friday close, having started at 3.231% at the Monday close. This is not a dramatic change by any means, but it lends some credence to the analysts who are now suggesting that we may have seen the bottom for interest rates this past week. The 10-year T-note, arguably, doesn’t have much further room to fall. At some point, investor confidence in sovereign debt—like our own—simply doesn’t hold up to the low yields. Why not invest elsewhere, if the risk is rising, where we can get a meaningful return?
But where? The question comes down to how long European investors will continue to store their wealth in dollar-denominated Treasury securities, avoiding their own euro.
But while these questions seem to gain importance, action in the stock markets last week seemed to suggest that the DJIA is showing resilience. Monday, for example, the day began after markets in the Far East had taken a drubbing—ostensibly because of furthers fears about the debt situation in Europe. The DJIA joined in the decline at first, then turned and regained most of what it had lost. On Tuesday, the DJIA continued to hold relatively firm against the tremors in other stock markets. On Wednesday, the Dow managed a gain—but lost it in a late afternoon sell-off.
While it’s a rather wild ride, the markets’ averages haven’t changed that much at the end of the day, and we watch in confusion. Economic indicators continue to speak well of the recovery in our nation. Consumer confidence rose 5.5 points in May, its third rise in as many months. (But let’s face it, the index is still extremely low.) Durable goods orders were up 2.9% in April.
But the GDP figure was revised down by two-tenths of a percent (to 3%), much to the surprise of most analysts. The main culprit: consumer spending was revised down. And personal income, which rose by 0.4% in April, showed no gains in personal spending—after six consecutive monthly gains. The saving rate, meanwhile, rose from 3.1% to 3.6%.
The latter suggests that the recovery is slowing a bit, but doesn’t suggest it is stopping. Indeed, we seem to be moving forward rather steadily, especially in our manufacturing sector.
Two final sources of confusion.
First, the euro improved very slightly against the dollar over the course of last week. The price of gold gradually rose. And the price of oil climbed back about $70, reach $74.09 at the end of the week. Sounds like what would happen if the markets believed we were really recovering.
Second, The Wall Street Journal ran an article about the recovery in the luxury home ($2 million+) market, with real estate expert Ken Fisher worrying that a weak stock market could bring an end to luxury market strength. What brought it on in the first place? We’ll probably know soon. Meantime, rates are great and refis are the name of the game.