Back on June 16 I wrote an article suggesting how I never enjoyed riding the roller coast at the amusement parks and my analogy was to the wild ups and downs of the stock market. Today (July 29, 2010) was another reminder of just why I wrote that article. The opening bell sounds and based on some released corporate earnings reports it proceeds to go up during the morning by 86 points. Then, based on some deflationary comments by a Federal Reserve Governor, suggesting a correlation is possible for the U.S. economy to the lost decade of Japan, it proceeds to go down from yesterday by -109 points. For those of you without a calculator handy that resulted in an intraday swing of 196 points. Watching this play out on the stock screen at times is just amazing and for the record, the Dow closed down -32 points while flirting both positive and negative throughout the afternoon.
Like I titled the article here, it is just so frustrating! I continue to see this disconnect between the economy and the stock market. Sure it has been a pretty good earnings season so far for many of the reporting companies, but I seriously question whether corporate America is really tuned in to the real economic direction over the second half of the year Maybe I sound a bit cynical but I feel that there are just too many signs that the economy is not healthy. We have a weak labor market, housing activity is extremely soft, as are retail sales, and there are a number of indicators reflecting a deterioration in consumer confidence.
A troubling news story I saw today indicated that foreclosure filings climbed in three-quarters of U.S. metropolitan areas in the first half of the year. A spokesperson for Irvine, California based RealtyTrac indicated that we are dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans. The company said that 154 of 206 U.S. metro areas with populations of more than 200,000 had increases in households with foreclosure filings. Cities in Nevada, Florida, California and Arizona account for the 20 highest foreclosure rates. It wasn’t that many years ago that these locations were hitting the headlines for the hot spots for real estate purchases.
First time unemployment claims fell by only 11,000 in the week of July 24 to 457,000. That clearly signals that the labor market appears to be very slow in improving and limited job gains may restrain consumer spending. Contrary to my earlier comment about the favorable earnings reports from many companies, there was a report today from consumer blue chip Colgate that disappointed investors and could be the indication of a consumer spending pullback.
I feel that the financial crisis hasn’t disappeared, it just seems to have changed shape. It doesn’t appear to be on Wall Street like at the beginning, but it surely rests on the lap of those on Main Street. Unless housing and unemployment problems start to subside the disconnect I spoke of will surely disappear and the markets and economy will finally be on the same page.
