ICFiles
SOC 2

CPA Website Content

Secure File Transfer Soc 2 starts at $1 per month

Join Us

 

 
Financial Calculators
Financial Calculators
 
Federal Tax Links
Federal Tax Links
 
Financial Terms Glossary
Financial Terms Glossary
 
Cartoon of the Month
Cartoon of the Month
 

Uncertainty Reigns on Wall Street

Stock Market News

September 2006

Uncertainty Reigns on Wall Street

As August drew to a close, investors stayed on the sidelines and stocks remained in a fairly narrow trading range, as Wall Street tried to figure out whether the economy is set to make a "hard" or "soft" landing. Many experts don’t anticipate any real clarity on the issue for quite awhile, as the market shakes off summer’s slower pace after Labor Day and economists digest a myriad of data.

Why the indecision? The key issue that currently concerns Wall Street is inflation and, with it, worries over how the Federal Reserve proposes to reduce it. To complicate matters, many traditional economic indicators used to predict these factors are at odds. Rising levels of housing stock suggest a slowdown in inflation is on the horizon, while June’s Consumer Price Index (CPI) numbers suggest that inflation is on the increase. If you are confused, don’t be alarmed. You’re not alone. Sentiments in the conference room and on Wall Street are all over the map. Many economists have taken issue with Fed Chairman Bernanke’s optimism, noting that core inflation is already hovering above Bernanke’s unofficial target of 2 percent a year (that forecast excludes food and energy prices).

Employment Numbers Hold The Key
However, amidst the morass of conflicting opinions and contradictory data, many experts are looking to the employment numbers to cast some light on where we might be headed. Historically, the peak in interest rates usually coincides with a trough in the jobless rate. Accordingly, Wall Street would be cheered to see a trend of positive job creation - a modest trend that would not send unemployment rates into a sharp decline. This type of scenario minimizes the Fed’s impact and allows for a soft landing - a mild slowdown that curbs inflation without creating the loss of many jobs. On the other hand, lower unemployment and weaker job creation would be expected to send stock prices lower.

Reversal of Global Trends
Trends outside the U.S. are also making the Fed’s job more complicated. Economists suggest that major shifts in global investment patterns are likely to have significant impact on U.S. inflation rates. The era of low-cost goods from China and other countries may be ending as global commodity prices and oil prices escalate. Along with costlier goods, the U.S. may also be about to see some curtailment in the flow of investment from poorer countries as these nations find ways to spend and invest their savings on-shore. The consequences of such action would be far reaching. Bear in mind that the flow of money from poorer nations may have helped reduce long-term interest rates in the U.S. by as much as 1.5 percentage points in recent years - a significant impact when mortgage rates are about 6 percent. A reversal in global investment, and a growing reluctance to finance the U.S.’s burgeoning trade deficit, would have major implications for the U.S. economy and the markets.

With few experts willing to go out on a limb with market forecasts, what’s an investor to do? Perhaps this is one of those times when a defensive strategy makes sense - an emphasis on solid, larger companies with consistent (albeit modest) earnings growth. Some suggest that investors look to consumer staples, noting that although people might hold back on purchasing a new plasma TV in uncertain times, they still have to buy grape jelly and laundry detergent.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

Protected by Copyscape Plagiarism Finder

Dynamic Content Powered by Service2client.com
SEO Content Powered by DynamicPost.net

ICFiles
SOC 2

CPA Website Content

Secure File Transfer Soc 2 starts at $1 per month

Join Us

 

CPA Website Content

 
 
Financial Calculators
Financial Calculators
 
Federal Tax Links
Federal Tax Links
 
Financial Terms Glossary
Financial Terms Glossary
 
Cartoon of the Month
Cartoon of the Month
 
websites for cpas

MyWeb, WordPress Joomla, Drupal
1 Click Hosting
Install free themes

websites for cpas

Click

 
Tax Calendar
Tax Calendar
 
State Tax Links
State Tax Links
 
Track your Refund
Track your Refund
 
Library Articles
Library Articles
 
 
 

CLOSE