S&P 500: -3.54 (-0.33%)
Today’s daily returns for the Dow Jones Industrial Index and S&P 500 were on opposite sides of nil. The Dow was able to post a small gain today thanks to large contributions from IBM and oil giants Chevron and Exxon Mobil. Most stocks, however, fell for a third day as stronger-than-expected demand in a Treasury auction and a disappointing consumer confidence reading led investors to question the strength of the economic recovery.
Despite the fact that less than half of the stimulus package money has been spent, it appears that the impact may have already peaked. Meanwhile, monetary stimulus will be retracted as the Fed stops purchasing mortgages and Treasuries.
And consumers aren’t going to bail out the economy anytime soon. Growing mortgage losses at banks are resulting in stricter credit standards, which make obtaining credit more difficult for consumers. Access to credit serves as an important stimulant for a recovery in consumer spending. In addition, the boost consumers received from collapsing energy prices last year has now largely faded.
These are all concerns I have discussed before, but I mention them again today as I see that the extension of the first-time homebuyer credit is moving closer to reality. It’s becoming clear that Congress will find a way to pump more cash into the economy before mid-term elections at any cost. Fiscal stimulus was sufficient in aiding the economy’s exit from the recession, but not much more.
It wasn’t long ago that the media was obsessed with predicting the shape of the recovery using letters of the alphabet such as V, U (or L), and W. Maybe the conversation should have included mathematical operators like the square root sign – flat-lining at a low base.
Quick Hits
Peter J. Lazaroff, Investment Analyst
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