US Economy: Evidence Stock Markets are at the Bottom

Omaha 27 Mar 2009. Have the markets reached bottom? This is something all investors want to know. Ordinary people also want to know when the economy begins its recovery too, for obvious reasons. And when they do, spending will increase and it will happen.

Omaha 27 Mar 2009. Have the markets reached bottom? This is something all investors want to know. Ordinary people also want to know when the economy begins its recovery too, for obvious reasons. And when they do, spending will increase and it will happen.

Some speculate that indeed we have reached the bottom. They point to the massive programs initiated by the US government as catalysts to recovery, as well as the large number of housing starts reported last week. These two pieces of news have caused markets to recover. A piece on seekingalpha.com reported, “Importantly, if unit home sales have bottomed and are turning up, they will ultimately take home prices – and stock prices – with them.”

It follows to say that “housing got us into this mess” and is what will “get us out”. However, the piece continues to say that full-fledged economic recovery will not happen until the housing market really flattens out. And until that happens, the stock market will still be on edge.

Another speculative report, this time on Businessweek.com, hints at a rebound due to “better policy, a shrinking trade deficit, in addition to clues from history”. Indeed, the trade deficit in January closed by an annual rate of $430 billion, which is 3% of the US GDP. The result is that the US becomes less reliant of foreign financing (China) to pay for imports. This creates stability in the financial markets and buffers them from overseas financial volatility.

The article also attributes signs of recovery to a 3.4% increase in durable goods orders, as reported by the Census Bureau on 25 March. These are items such as computers and machinery.

It adds that the Treasury and Federal Reserve have dumped about $2 trillion into the economy, another healthy sign towards recovery.

Hiroko Mirafiori, Economywatch.com correspondent said, “The money the US government has injected into the economy will help but we have yet to see its full effects. As long as banks still carry so much toxic debt there will be no trust among them and credit will remain frozen. Although policy has begun, it’s no instant fix. We still have a hard road ahead.”

However, he cites “stubbornly high unemployment” as the downside of the scenario. Some economists believe that unemployment could be drive up 7% over five years, as is characteristic of a financial crisis. The result would be unemployment of 12% by 2012.

Vladamir Gonzalez, EconomyWatch.com