Given the hype that inflation is once again in the news from many credible sources such as The Valueline Investment Survey and investment strategist professionals, it is an interesting economic time in our country.
Stockcharts.com presents a PERF: S&P Sector ETFs chart that affirms what many are discussing. That the US economy is in an early recovery while the financial markets are seeing maturation from its recent run-up.
Though the economic recovery is in its early stages, there is an elevation among consumer confidence that's premature yet welcomed causing many to breath a sigh of relief. Consumer sentiment is up (even though many are being cautious about spending). Keep in mind that the consumer accounts for 70% of the nation's gross domestic product.
Industrial production is picking back up with many companies hiring, adding back in shifts/workers to meet market demands, and upping advertising as well as catalog production publications. This is an encouraging sign.
John Murphy blogs about Bond Yields Jump and how this is favorable for stocks but not for bonds. Rising bond yields show that the economy is strengthening. Below he depicts how breakout from the 50 day moving average line for the 10 year treasury note yield has been affirmed technically.
Interest rates are at lows and have no where to go but UP! There is risk involved as those with portfolios exposed to a rise in interest rates may suffer a setback. Fixed-income investments such as bonds, cds, money management, municipals and other bond-related investments will encounter a challenge. Current yield curve is normal. This is likely to change but not too quick anytime soon. The Federal Reserve's flow of funds lending shows an uptrend in net lending from banks; however, banks are being more cautious given past financial loss from loan loss provisions and other.
Housing market has been in the doldrums with a strong downtrend in new home sales and existing home sales going back to 2005. Many have seen their houses not sell or devalued well below expectations. In certain respects, housing has seen a correction and has become affordable for some. As is prudent, many are reluctant to purchase housing because of the tremendous financial loss from the sale of their last home, the job market and certain uncertainties with current employment, and inflationary woes as food costs and energy prices are on the rise. Real estate agents and other professionals are seeking creative ways to entice activity.
Global events will occur. It is unfortunate what's occurred in Japan. We have yet to see the impact economically it will have on our US economy. Turmoil in the Middle East/North Africa, the ongoing war in Afghanistan and Iraq, and even the BP spill off the Gulf shoreline are many unforeseeable events that will affect us. While global events may mobilize many military personnel into activation and relocation, it is a time for the military community to consider local economics surrounding bases and areas of living. Guard and reserve deal with more localized economics.
In consideration of the US financial markets, it's likely that global events and the risks of inflation will affect any gains made so far.
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