In a deep contrast to September of last year, the last several days of trading seem to be running on a combined fuel of enthusiasm and hope. This week has already brought surprising numbers on the retail front as well as a near self-congratulatory statement from Ben Bernanke, twined positives which may send things higher. The market is fast approaching key numbers which may be the next proving ground for this rally.
Tuesday’s Commerce Department read on retail sales came in at a 2.7 percent gain, knocking out the Briefing.com economist survey prediction of 2 percent.1 Some gains were likely to come on the heels of the Cash for Clunkers program, but the real question may be centered on how much of spin-off from that program will boost – or erode – other consumer spending. Although the retail sales number was a surprise for some, it may take a few months to see if it can be sustained.
This kind of sentiment is contrary to the feelings or conclusions which appear to have been drawn from Bernanke’s comments. Headlines have highlighted his possible conclusion that the recession was “likely over”, but below the surface his uncertainty may be palpable. Weakness may still permeate the economy in the form of job and employment issues. That is hardly the fodder for strong growth. What may be more to the point in determining the area of success for equities may be the slide in the US dollar.
The perceived weakness in the US dollar has likely been the catalyst for the moves higher in both equities and commodities. A weaker dollar likely makes some of these products more attractive to foreign investment, pushing prices up. Any cue from the greenback could easily translate into an inverse movement in the market.
Overall, the trinity of the dollar, employment, and consumer spending will have to be weighed before the market can truly make a run at 1100 and hope to hold.
1 http://money.cnn.com/2009/09/15/news/economy/retail_sales_august/?postversion=2009091512
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Past Performance is Not Indicative of Future Results.
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