By Clyde Noel
When Federal Reserve Board Chairman Alan Greenspan speaks, he does a good job preparing investors for what’s ahead for the market. His comments last Thursday indicated interest rates are going to continue to rise, but the market has done a good job factoring in these hikes. He doesn’t shock anybody but potential investors, so the market always seems to take a header.
Last Thursday the Dow Jones industrials lost 80 points and fell back into negative territory, while the Nasdaq composite shed 26.09 points or 1.25 percent. Friday morning the market started to correct itself but continued downward after it had been open several hours.
By last Friday’s closing, the Dow industrials and the Nasdaq were practically flat but still showed a decline for the week. The Town Crier index was up more than 1 percent because large-cap Google and eBay had nice increases while other Town Crier stocks remained mixed.
Without the Federal Drug Administration panel voting to allow Merck and Pfizer to continue selling their arthritis treatment painkillers Vioxx and Celebrex, the market would have ended much lower.
What we are looking at is a lack of certainty about the strength of the economy, the pace of inflation and how much higher interest rates will go, plus another myriad reasons to avoid the stock market.
Greenspan offered a modest endorsement of President Bush’s idea of setting up private retirements for younger workers when he said: “Until we can construct a system which creates savings that are required to build the real assets so that the retirees have real goods and services, we don’t have a system that’s working. We have one that basically moves cash around.”
That comment sums up the Social Security issue as clearly and succinctly as anybody has ever done. Greenspan likes private retirement funds because then the government can’t grab the money and spend it.
When you take Greenspan’s comments together with the PPI report, the market is likely to be on edge over the next several weeks until we get more inflation data either confirming a pickup in consumer prices or the fact that this Producer Price Index (PPI) report is an aberration.
