As the Dow Jones Index has rallied 3,800 points (over 55%) since March, there has been a consistent 'wall of worry' about inflation and increasing interest rates. The Federal Reserve has maintained a consistent policy of keeping interest rates close to zero. The Great Recession of 2008-2009 is over, but Ben Bernanke is worried about further weakness in 2010.
As we all know, unemployment is a lagging indicator, but when it is above 10% nationwide, there is cause for concern. The Obama government has trouble sleeping as they contemplate a jobless recovery. This brings up the great 'disconnect' between Wall Street and Main Street. The S&P 500 has rallied while more people continue to collect unemployment checks.
My conclusion from the disconnect is that we will continue to climb the 'wall of worry' into 2010. The monthly unemployment report will improve as the next six months unfold. The consumer will spend more than forecasted for the holiday season and major corporations will increase their profit margins. Where does this leave the markets? The markets will trend higher as zero interest rates lead to fatter profits for the Banks.
Random thoughts....the Dow is still down over 25% from the highs of 2007....look for another 10-15% upside in the market over the next three months...the next big event will be the Obama health plan...how quickly will it pass the Senate or will it run into trouble....look for a major rally in the markets if the Senate has trouble passing the plan....
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