Don’s Outlook 8/7/09
It was the better-than-expected GDP report that helped the S&P 500 Index break through the 1,000 level this week. Even real estate and financials received a boost. Today, improving unemployment numbers spurred additional stock market gains, sending yields higher. Job losses were concentrated in construction, manufacturing and retail sectors, accounting for almost 60 percent of the 247,000 jobs lost. Health services, leisure and government added jobs. The lower-than-expected loss caused the unemployment rate to dip, from 9.5 percent to 9.4 percent.
In spite of the job numbers, an increase in the purchasing managers’ index has the manufacturing sector closer to a recovery. The ISM manufacturing index reached 48.9, above estimates for 46.5 and up from 44.8 the previous month. (A number above 50 indicates expansion.) Earlier this week, CLSA released their PMI for China, and it showed the manufacturing recovery gained strength as the number climbed from 51.8 to 52.8 in July.
Ten-year Treasury yields climbed to their highest level since mid-June, even though Fannie Mae said it needs $10.7 billion from the government after losing $14.8 billion in the second quarter. Yields on the ten-year note are getting close to mid-June levels, when the yield on 30-year mortgages reached 5.59 percent. Housing cannot recover without lower prices, and they will come by way of lower interest rates or lower prices. Investors reacted to the unemployment figure, however, and bid up the value of housing related companies.
The Associated Press reports that the Senate approved a $2 billion extension for the Cash for Clunkers program. The 60-37 decision in favor of the injection of funds comes just before a month-long recess. The extension will head to President Obama, who is expected to give his stamp of approval. Buyers have another month to take advantage of the stimulus. Fidelity Select Automotive (FSAVX) has received an added boost from the program.
I continue to believe that the market has begun the lengthy process of repairing itself after the financial crisis last fall. Therefore, I encourage investors to begin reinvesting any cash that they have kept on the sidelines, in keeping with your own risk tolerance levels.
