In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.
Particularly living in a “storm belt” like we do in Alabama, we’re fascinated with the “360 degree sweep” technology that a Doppler radar offers to provide better, and timely, information. When there is not much meaningful economic data coming out in a quiet reporting week to cause a “honing in,” the markets have a tendency to “sweep around” like a Doppler radar to get their bearings. That’s clearly where we find ourselves today.
Because there is so little economic data this week, the markets are looking for clarity in Washington, New York, Europe and China all at once. The Washington focus is still on the tax cut compromise, which generated early market gains that did not hold up. Once the market digested the favorable tax cut news, it got “knocked back” when focus shifted to an announced insider-trading probe and on-going concerns in Europe. Stocks opened marginally higher this morning, although corporate headlines are not helping today, as outlooks from Texas Instruments, Costco and Home Depot created modest selling pressure. Also, China has signaled a potential rate hike, which has non-Japan Asian markets off and Japanese markets gaining.
Here are four major items that we were discussing this morning in our offices and are tracking for our readers:
- The IMF vote on the Irish bailout package is Friday. Yesterday, the Irish parliament had an initial series of budget votes and the Greeks are about to do the same. It will be interesting to see if these countries are willing to “do what it takes” to make their economies better for the long-term.
- The tax cuts package, if it holds in current form, will boost the 2011 deficit between $700 and $800 billion. Keep in mind that two things were not anticipated by the market in the deal: (1) the payroll tax cut, and (2) the full depreciation allowance on capital equipment purchases. Combined with the “market known” of unemployment benefits, this will really add to the national debt load this coming year.
- Consumer credit is rising, but the debt-to-income ratio is falling. For the second consecutive month, consumer credit is up, but those same consumers are making good progress in repairing their balance sheets by dropping the proportion of debt that they carry to their income. If the payroll tax cuts remain in the tax cut compromise, consumers will likely continue to pay down their debt, just as they have for the past two years.
- The Fed is carefully watching the mortgage market as a barometer of its second round of quantitative easing. By keeping rates lower for a longer period, the Fed is “opening the door” for homeowners and business property owners to refinance at lower rates and have them spend or invest the savings generated as an economic stimulus.
As always, email me here with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA