Stock Prices Move Higher Once Again

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Stocks closed out the holiday-shortened week on a negative note as a result of last Friday’s employment report, but still managed to move higher on the week. The dismal employment report showed that just 18,000 jobs were created last month, which is nothing when you consider that we are a country of 300 million people. That measly figure was far below the 125,000 jobs that economists had expected, and left politicians, economists, and the general public scratching their collective heads as the unemployment rate moved up to 9.25. Unfortunately this figure took the wind out of the recent market rally, and lifted the anxiety levels of the bullish camp in a big way.

However, even with last week’s dismal economic news, the holiday-shortened week after the Fourth of July still managed to see equity prices move northward. The Dow Jones Industrial Average of blue-chip stocks was higher by 74.43 points, or 0.59%, on the week, and now rests at the 12,657 level. The broader Standard & Poor’s 500 managed to eke out a 4.14 point gain on the week, or 0.31%, leaving it at the 1,343.81 mark, and the Russell 2000 was higher by 1.49%. The Nasdaq Composite had the strongest showing of all the three major market measures, gaining 43.78 points, or 1.55% on the week.

As we move into the second half of the year, the major market indexes are still looking rather respectable, despite all the volatility. The Dow Jones Industrial Average is now higher by 9.33% for the year thus far, with the Standard & Poor’s 500 higher by 6.85%. Meanwhile the Nasdaq Composite is to the green by 7.80% thus far in 2011, and the smaller-cap stocks as represented by the Russell 2000 is northward to the tune of 8.79%.

The shockingly poor June employment report as announced above, fundamentally changed the current expectations about Federal Reserve policy and the course of interest rates over the net year and so. News that only 18,000 workers were added to nonfarm payrolls last month sent prices of interest-rate futures contracts and Treasury securities soaring. After this dismal report was released last Friday, the federal-funds futures market pushed back the expected date of the Fed’s next increase in its key policy rate – to 0.5% from the current 0 – 0.25% range has been in place since December 2008 – all the way to December 2012 or perhaps even January 2013. Before the nasty jobs report, fed-funds futures put a 40% probability on a July 2012 hike. The benchmark 10-year note’s yield plunged back close to the 3% mark, to 3.02%, from 3.215 the previous Friday. Meanwhile, the two-year note’s yield, which reflects expectations of future short-term rates, fell all he way back to 0.39%, from 0.48%.

With talk of a new “double-dip” recession on the horizon, there’s now talk of a Quantitative Easing III (or QE3) might soon be presented. In the political arena, the blame for the weakness in jobs growth was ultimately directed toward the Obama Administration; especially since its multi-hundred billion-dollar “stimulus” package appears have to had no lasting life on our present economy. Midway through a year that began with expectations that this would finally be the time for the ailing U.S. economy to take off, the nation is stuck in a muddle, with over 14 million people currently looking for work. Two years after the supposed “end” of the recession, we are still seeing Depression-era unemployment, falling home values, and small businesses acting like a deer in the headlights. Right now we’re still dealing with a doomsday standoff as to whether or not to raise the debt ceiling; all the while we get few new solutions as to how to get our economy up and running again. And even though the stock market has been strong as of late, there is no getting around the fact that the debt ceiling debate could really derail this recent rally in stocks, and ultimately hurt our wobbly economy even more.

Until next week, try to stay cool, and enjoy the temperate summer months.

Sources: Barron’s, Wall Street Journal, Yardeni Research, Associated Press, Gorilla Trading, Dow Jones & Company

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