UP, DOWN, SIDEWAYS...
These days the markets seem like New England weather. The old joke goes, if you don't like the weather in New England, stick around -- it's bound to change completely! What you thought of the markets last week depended on when you showed up.
Early in the week, we had rising commodity prices with oil creeping back toward $100 a barrel. A jump in consumer inflation was reported on Wednesday, so stocks slid, then rebounded in the afternoon. That's when the minutes from the January Fed meeting came out, showing members weren't too bothered by inflation. And when the Fed forecast higher inflation and lower GDP for 2008, even that was good news to investors, since it meant further rate cuts would stay in the picture.
Thursday, the Philadelphia Fed Index showed a higher than expected negative number, indicating manufacturing contraction. Recession fears pushed stocks back down. Friday started bad too, but then CNBC reported banks were coming together to help bond insurer Ambac keep its triple A rating. If the deal happens, it won't be for a few days, but this good news for the credit markets was enough to get stock prices storming back Friday in the final 45 minutes.
The Dow closed up 0.8% for the day to end the week up 0.3% at 12,381.02. The S&P 500 gained 0.2% for the week, closing at 1353.11. The NASDAQ didn't fare as well, ending down 0.8%, at 2303.35.
Before we all start worrying about a recession the media seems obsessed with, consider this. That lower Philly Index is still well ABOVE recession levels and initial jobless claims are well BELOW where they would be, heading into a recession. In addition, low interest rates mean we shouldn't have all those Adjustable Rate Mortgage (ARM) reset problems that were so widely anticipated just a short time ago (see Home Base, below).
The week saw lots of turbulence in the bond market, but for all the scary activity, bonds pretty much ended where they started. The yield on the benchmark 10-year T-bill wound up a tick above the previous week's close, at 3.788%. And mortgage rates remain at historically low levels.
brought to you by your friends with ctx mortgage
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