By Clyde Noel
If last week was a sign of things to come, this summer could be one to hang around home and make a few bucks investing in the stock market.
Wall Street notched its third straight month of gains after a couple of reports showing upticks in consumer sentiment enhanced by the soon-to-be-felt impact of the huge economic stimulus package.
Last week the Dow Jones industrial average closed up 1.6 percent at 8,850, and the Nasdaq rose 5.7 percent to its highest level since May 31, 2002. The Town Crier index rose 6.91 percent.
Since Jan. 1, the Town Crier index is up 31.85 percent. Most issues show double-digit increases, with only four of the 50 declining since Jan. 1. One of the most bullish things about the market is the large group of lagging stocks in the Dow Jones industrials yet to catch the wave, while the tech stocks on the Town Crier index are taking part in the upward move.
Smart investors are looking for late second or early third quarter positive results. While the market is vulnerable to shocks from terrorism and the shadow of war, it’s hard not to get a bit bullish over recent events.
The decline of the U.S. dollar compared to the euro and the yen won’t turn the economy around, but it will help stave off deflation and give the economy a small boost.
A weaker dollar helps the economy by boosting U.S. exports, because American-made goods become cheaper in foreign countries. A lower dollar also pushes up prices for imported products like French wine and German cars so consumers start to buy American.
The weak dollar may cause Americans to forgo overseas vacation plans and spend their tourism dollars at home by visiting Disney World and other U.S. resorts.
The one thing that lends a note of caution to the market is the still-terrible state of the U.S. employment picture. This becomes a concern because this Friday the May jobs data are released. Preliminary reports indicate that unemployment will inch up a bit to 6.1 percent from 6 percent.
The $370 billion tax cut has many individuals and business owners drooling over refunds. The low cost of cash has prompted another round of mortgage refinancing, and corporate America is restructuring loans at a record rate with much cheaper costs. Lower interest payments mean lower monthly bills that create higher quarterly earnings per share.
While the sun appears to be rising on Wall Street, I’m not going to throw all caution to the wind and put my entire money in stocks. Since cash is king, it’s always handy to keep around 10 percent of the portfolio in cash.
