Will the Dow Get to 11,000 This Week?

The economic reports keep coming, and the near-term view is that the economy is moving deeper into recovery. Should we get excited?

The answer is both “yes” and “no,” and the market response to the economic news of this week and last is proof of this. Uncertainty still has a grip on the market, clearly. Part of that is the less-than-expected rise in employment, but my guess is that what Ben Bernanke said today is more important.

Bernanke noted that the economy has stabilized and is beginning to grow again. He sees the financial crisis as mostly behind us but that we are not yet out of the woods. The Fed chief, however, is still concerned about rising mortgage delinquencies, troubled commercial real estate, and long spells of unemployment. Inflation currently is not a concern as inflation expectations appear to be stable. He did comment broadly on fiscal policy, noting that with the economy below potential, now is not the time to cut the deficit sharply. But in the long run, choices must be made between raising taxes or cutting government spending in order to bring down the federal deficit.

Consider as well today’s auction for U.S. Treasuries. Although the reaction seems somewhat muted, this too should have an impact on how excited we get about the market moving higher in the short term.

Buyers have returned in force to Treasury coupon auctions. The April 10-year note auction, a reopening of the February 3.625 percent coupon, posted a bid-to-cover ratio of 3.72 for the highest rate in the last nine years of data.
New troubles for Greece have increased the value of the dollar and are giving a boost to U.S. Treasuries. Treasury prices are extending gains in reaction to the results.