The benchmark S&P 500 has gained 52% since early March and investors continue to be optimistic about buying equities. The last five days have seen consecutive gains in the markets, pushing the index up another 1.25%, and futures are looking to extend those gains early this morning.
Pretty soon the climb could match the even more robust 64% gain in China’s Shanghai Index. Its 2.2% rise earlier this morning, set off by better than expected data in industrial production, retail sales and lending, is a major factor in boosting sentiment around the globe today.
“Valuations have nearly doubled to 19 times earnings since March, so there’s a lot riding on the improved economic picture,” said Sal Guatieri from BMO Capital Markets in a morning note.
Gains in financial markets and improvement in recent economic data allowed Treasury Secretary Timothy Geithner to announce yesterday that policy would shift towards unwinding the government measures introduced to stabilize the economy after the collapse of Lehman Brothers almost one year ago.
A government guarantee on money market mutual funds, implemented last September when one major fund “broke the buck” (fell under par value), will expire on schedule at the end of this month.
“As we enter this new phase we must begin winding down some of the extraordinary support we put in place for the financial system,” Geithner said, adding that the government will reinforce recovery until it is “led by private demand.”
Geithner also told Congress to cancel the option of tapping into an additional $750 billion, a back-up no longer needed now that the economy has “stepped away from the brink” and is now “pointed in the right direction.”
In this morning’s headlines, the Census Bureau reported that inflation-adjusted household incomes fell 3.6% from last year to $50,303. The Wall Street Journal calls that “the steepest year-over-year drop in forty years.”
For the housing market, a Realtytrac survey found that foreclosure filings fell 0.5% to 358,471 in the third quarter. Still, filings are up 18% from last year.
Also, the White House Council of Economic Advisers said the administration’s $787 billion stimulus package added 2.3% to real GDP in Q2, which overall moved down 1.0% in the latest estimates.
Key Releases Today:
10:00 ― The first monthly look at Consumer Sentiment is expected to show a small uptick in September, reversing the minor loss seen in August. Forecasters assume the preliminary survey from Reuters and the University of Michigan will inch up from 65.7 to 67.0, with a range of predictions between 65.0 and 69.0.
“Nevertheless, consumer sentiment remains low and the ongoing weakness in the labor market will limit a strong increase,” said forecasters at BBVA. “As a result, the consumer outlook could provide an additional barrier to the recovery of the consumption component of GDP.”
2:00 ― According to Bloomberg News, the Treasury’s budget deficit in August over the past 10 years has been $50.8 billion, whereas in 2009 analysts expect stimulus measures to puff up the monthly gap to $174 billion, a monthly record. That will push the deficit in the first 10 months of the fiscal year to $1.44 trillion, in line with expectations for an annual debt of $1.6 trillion (11.3% of GDP).
Before revisions released in August, the annual projection was for a $1.8 trillion shortfall. But with numbers that large, it’s unlikely many were comforted by the revisions, especially as projections for the 10-year deficit were revised in the other direction.
