This was a most unusual week for an investor. At the end is some information on Palm Sunday. This newsletter will cover 3 topics: earnings, health reform, and interest rates.
Corporate earnings continue to come in stronger than anticipated. By a ratio of about 4 to 1, corporations reported positive earnings above projection compared to missing an earning projection. This is very bullish for the stock market as the ratio is normally not this high. Given that this year the manufacturing and service sectors continue to grow this period of better than anticipated earnings should continue for the next quarter.
The heath reform legislation was signed on Tuesday. The stock market responded by remaining relatively flat. A reaction was seen in the bond market as investors sold long term treasury bonds on Wednesday and Thursday resulting in higher interest rates. On Friday, long term interest rates started going back down. These interest rates went up because of a belief of higher interest rates associated with a higher debt level. On Friday, interest rates reversed course as no suitable alternatives exist.
The short term impact of the health reform legislation is very minimal. Now many people are on the news are stating doom and gloom. Please ignore these people and relax from an investing perspective.
Palm Sunday
Palm Sunday is the sixth Sunday of Lent and the last Sunday before Easter. It is also known as Passion Sunday, Willow Sunday, and Flower Sunday.
Palm Sunday commemorates the triumphal entry of Jesus into Jerusalem, where he would be crucified five days later. According to the Gospels, Jesus rode into town on a donkey as exuberant crowds hailed him as the Messiah and spread out palm branches and cloaks in his path.
The event commemorated on Palm Sunday is told in all four gospels (Matthew 21, Mark 11, Luke 19, John 12). The Matthew narrative, the one most commonly read in services on Palm Sunday.
Showing posts with label Interest Rates. Show all posts
Showing posts with label Interest Rates. Show all posts
Sunday, March 28, 2010
Tuesday, September 16, 2008
Interest Rates & Gas Prices
The big news today was the government bailing out AIG and the news on the financial sector, aka Wall Street firms.
The most important business news was a $0.11/gallon drop in gas price futures and low interest rates. So in 2 days the price of gas futures has dropped $0.33/gallon, even after Hurricane Ike and the closing of refineries.
Why is this important? It means that the normal business cycle works and both events are very positive for the equity, aka stock, markets in the US and Internationally.
As interest rates drop, fixed income investments such as bonds are less attractive meaning that money will tend to migrate to the equity markets. Lower interest rates are typically positive for the long term prospects of the equity markets. No investor wants to get a return on an investment that is lower than the inflation rate because you automatically lose money.
As gas prices drop, consumers will have more money to spend putting money into the economy. This is positive for equities that correlate with the economy. The effect of lower energy prices will have a much bigger impact on the economy than the recent stimulus checks.
If you listen to the news and the financial information on the financial sector bailout, you just might be scared and tempted to sell all equities and put money into a money market account. This is probably not the best move.
The financial sector is unwinding and getting back to reality. Interest rates and energy prices are getting back to normal. These 3 points are favorable from a long term perspective for the equity market.
Shut off the news and relax.
The most important business news was a $0.11/gallon drop in gas price futures and low interest rates. So in 2 days the price of gas futures has dropped $0.33/gallon, even after Hurricane Ike and the closing of refineries.
Why is this important? It means that the normal business cycle works and both events are very positive for the equity, aka stock, markets in the US and Internationally.
As interest rates drop, fixed income investments such as bonds are less attractive meaning that money will tend to migrate to the equity markets. Lower interest rates are typically positive for the long term prospects of the equity markets. No investor wants to get a return on an investment that is lower than the inflation rate because you automatically lose money.
As gas prices drop, consumers will have more money to spend putting money into the economy. This is positive for equities that correlate with the economy. The effect of lower energy prices will have a much bigger impact on the economy than the recent stimulus checks.
If you listen to the news and the financial information on the financial sector bailout, you just might be scared and tempted to sell all equities and put money into a money market account. This is probably not the best move.
The financial sector is unwinding and getting back to reality. Interest rates and energy prices are getting back to normal. These 3 points are favorable from a long term perspective for the equity market.
Shut off the news and relax.
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