Pessimism & Optimism
During the last week of June, the stock market posted its best weekly performance in almost two years. Prior to that, it had dropped in seven of the previous eight weeks. Such is the world of stock investing. Economic data that suggested the economy was slowing down was the cause of the sell off. Better than expected data late in the quarter calmed many of these fears. Manufacturing data that topped expectations, stable home prices, lower unemployment claims, and higher consumer confidence all combined to push stock prices higher. We also saw some resolution to the debt crises in Greece, which calmed some of the fears on the global economic front, at least for now. The whole European debt problem will likely continue to be a problem for the foreseeable future.
When we discuss the economy and how strong it is or isn’t, it is important to remember how bad things were three years ago and how far we have come since then. During the fall of 2008 and the spring of 2009 the U.S. economy was on the brink of falling not into a recession, but into an economic depression. While things might not be where we would like them to be, it is remarkable that we’ve gotten this far this fast.
One positive we’ve seen over the past three years is the American consumer has been repairing their personal balance sheet. During the past year, the average person has dropped their total household debt from 120% of their annual after tax income to 114%. Outstanding credit card debt in the U.S. is at its lowest level since 2004. While paying off debt and saving money doesn’t add to economic growth, it does make people healthier financially, which makes our economy stronger over the long term.
Since 1940, there have been twelve recessions in the United States. Since the most recent recession ended two years ago, there have been 550,000 new jobs created. In terms of jobs created that places this recovery tenth out of the twelve. The best recovery in jobs was after the 1982 recession when almost seven million new jobs were created in the first two years of recovery. While things have improved, this has definitely been a sluggish recovery. The terrible housing market has a lot to do with this. While job creation has been slow, corporate earnings have experienced a strong bounce back. Profits for the companies in the S&P 500 are projected to be up 27% over a year ago. It will be key for the stock market to keep growing earnings despite the uneven recovery. We expect to see continued volatility in both the stock and bond markets as the economy tries to overcome these obstacles.
About Wabash Capital
Wabash Capital is an employee-owned registered investment advisor based in Terre Haute, Indiana, providing investment advice and professional portfolio management to individuals, corporations, banks, trusts, retirement plans and endowments. To learn more about our business, please visit www.wabashcapital.com.
