Economic & Market Update: September 28, 2009

“Investors Take a Breath”

Chris Maxey, Analyst

http://www.Fortigent.com

Last Week’s Highlights:

Economics This Week:

Markets Fall on Weak Data

This past week was off to a tepid start before poor economic data and news from the FOMC/G20 created headwinds.  The S&P 500 index closed down slightly more than 2%. 

Much of the weakness was driven by a disappointing report on existing home sales.  Economists were anticipating 5.35mln home sales, but the actual reading came in at 5.1mln, a 2.7% decrease from the previous month.  Average home prices also fell in the month, likely due to the impact of the first time home buyer tax credit.  Buyers in this segment are working to find the most affordable residences possible, weighing on overall home prices.  The expiration of this credit at the end of November will likely send the housing market into a state of flux.

Source: Econoday

News from the FOMC last Wednesday was generally more optimistic, which led market participants to postulate that the Fed would choose to wrap up security purchase programs sooner than expected.  The Fed’s accommodative policies have proven very effective in supporting a host of security markets.  But, investors are wary that an early or un-orderly exit by the Fed from one or all of these programs will add to the confusion in an already uncertain market.  The markets have shrugged off the Fed’s exit from certain liquidity guarantees already, but the biggest programs remain under construction. 

New World Order Becomes Reality

Members of the G-8 were finally forced to deal with economic reality last week.  The emergence of the BRIC countries in recent years was expected to evolve over the course of decades, but it looks as though their time to take center stage is at hand. 

Members of the G-8 announced that the G20 meeting would now be the official forum for coordinated economic decisions between the world’s major economies.  Based on data analyzed by Bloomberg, China will usurp Japan as the world’s 2nd largest economy as early as 2010.  The combined economic output of Brazil, India and Russia is not far behind. 

Source: Bloomberg

Although the developed economies are unlikely to be pleased at relinquishing their power, the credit crisis of 2008 taught us that the time may be now to consider an adjustment to our current thought process. 

The Week Ahead

This week brings a healthy amount of news on the economics front. Key reports include the Case-Shiller Home Price Index.  A lesser rate of decline is expected, as the summer months brought flickers of life to the housing market.

The August personal income/spending reports are expected to show a 1.1% rise in personal spending, on the heels of the back to school season.  Labor Day came later than expected this year, which could have pushed spending further into the month of September.  As we all know, a happy consumer translates into a happy economy.  Finally, on Friday, the September unemployment report will be released.  Initial and continuing unemployment claims have fallen in recent weeks, suggesting that the pace of layoffs is gradually slowing. 

On Wednesday, the World Bank is set to release its Global Financial Stability Report.  This report will be widely reported and provides a concise snapshot of the world economy. 

Lighter Side:

Source: Pittsburgh Tribune-Review

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