A variety of concerns drove market prices lower on Tuesday with the Dow closing below 10,000. The S&P-500 closed lower, and from our view, below a significant level of support. European banking concerns and possible contagion are not gone. Also, there is recognition that China is slowing and will not be a replacement for the US as an engine of economic growth. China is a big country but the consumer impact is still much smaller than the wealth available to consumers in our country.
Consumer confidence is a critical component of a growing economy. Today’s report of consumer confidence declining by more than 15% in June was the 6th lowest report since 1999 and much lower than anticipated. Confidence is not likely to improve much as long as employment growth is anemic. The survey did not find much optimism among job seekers for prospects of employment.
The impact of federal stimulus programs peaked in the first quarter. The Administration’s efforts for another “jobs bill” have failed. With Senator Byrd’s death, the 60 vote majority is gone. Additional spending will be difficult to obtain as more Democrats respond to constituents concerns over the federal debt and deficit.
Government inflation numbers do not seem worrisome if one is to trust what the government tells us. (Surveys indicate there is not much trust). The pinch for households is going to come from a squeeze caused by flat-lined or falling incomes meeting higher gasoline and health insurance costs in the coming year. It will feel like inflation and further reduce discretionary consumer spending. We have referred readers to www.economicindexes.com to follow the current trend. Government reports have not caught up with real time data.
Real estate remains stagnant in most parts of the country. Modest price rises in California associated with the end of the tax credit program do not make a foundation for future recovery. Early reports for May show significant declines which will adversely impact consumer confidence and spending.
Normally, at quarter’s end, institutional portfolio managers are buyers of major companies so reports look good. That has not been enough to offset greater economic concerns.
What we observe is a market where risk is declining to attractive levels in an environment where opportunity is narrowing into fewer sectors.
Don Creech Don hosts the weekly Don Creech Radio Show (www.DonCreech.com) discussing current events affecting your financial well-being. Don is the founder and co-owner of Investor Resources, Inc. He has attended Grossmont Community College, San Diego State University, Bellevue Community College and City University. Full Profile & Contact Information...
