The stock market continued its midsummer decline last week, as all three major indices fell to levels last seen since the late-1990s, despite President Bush’s pronouncement that the economy is fundamentally sound. The Dow Jones Industrial Average finished its worst two week period since the crash in October, 1987, and overall the markets endured the ninth consecutive week of negative performance. While some traders are concerned that more corporate accounting scandals will be revealed, and there are some indications that the housing market is losing strength, there was good economic news this past week that went unappreciated, and that could avert more losses in the weeks ahead.
The markets, though, did experience a week of poor performance. The Dow finished the week at 8,019.26, falling 390 points on Friday, its seventh-largest ever point loss, and down nearly 1400 points since July 5. The NASDAQ ended the week at 1,319.15, down 32 percent for the year, and the S & P 500 ended at 847.76, down 26.2 percent since the year began. Coinciding with the loss in the markets, mutual funds have experienced sharp outflows of cash, as net outflow increased from $11.1 billion in June to already $18.5 billion since the beginning of July. Also, economist also predicted this week that the University of Michigan’s Consumer Sentiment Index is expected to drop to 87.7 in July, from 92.4 in June.
Even the housing sector of the economy is beginning to expand less quickly, enough that some economists are describing it as a bubble. This could be an ominous portent, as the housing market has continued to remain almost unaffected by the rest of the economy, and two-thirds of Americans list their houses as their most valuable asset. New home sales are expected to be down 3 percent for the month of June, and existing home sales are expected to fall to 5.72 million in June, from 5.75 million in May. Housing had been expecting to remain healthy as mortgage rates are near 30 year lows, but the sector is in a slight bubble, as median home prices have risen 8 percent over the past year, while income has only risen 2.9 pecent in the year ending March 31.
However, good news is not too difficult to find, and perhaps the most encouraging news this year was included in Chairman of the Federal Reserve Greenspan’s statement on Wednesday. Greenspan has continually warned that corporate spending will not increase until excess inventories have been reduced, and last week he stated that factories have “largely” worked off such oversupplies. In this mood, though, positive news is ignored for only slightly negative news. The market, then, is in search of an identity, trying to contract or slowly expand, but never remaining static.
