The Dow Jones Industrial Average rose today by 187 points, a 1.41% rise. The NASDAQ rose by 32 points, or 1.28% and the vaunted S&P 500 Index by 22 points or 1.52%. The markets were relatively benign until the details emerged from the Federal Reserve's Beige Book.
The Beige Book is released eight times per year, and is the collective wisdom of the 12 different Fed Governors. The news was better than expected, and the 10-year treasury note, which was topping out at 5.25%, began to sink and investors re-focused on the equities market.
The details from the Beige Book report was just the music the equity investor wanted -- needed -- to hear. Capital goods orders were picking up and the job market was, indeed, stabilizing. To boot, the real symphony continued when the Fed indicated there was no upward pressure on wage prices, thus stemming one of the legs of inflation. Consumer spending appears to remain in a healthy pattern, with general retail sales up a surprising 1.6%, versus the expectations of 0.8%. The consumer is still in a position to sustain economic growth.
The indicators from the Federal Reserve basically put the "R -word": Recession, back into the closet.
The equities market took a hit this past couple of weeks as the 10-year treasury note went from a 4.5% yield to 5.25%. The Dow gave up nearly 400 points before today's robust recovery. The next two points of interest will be the PPI and CPI indices released these next two days.
What the stock market was looking for -- it got. The bond market was down a bit today, but was actually higher than expected due to rapid short covering by traders of the 10-year note. Once that settles and normalizes, many traders expect the bellwether note to sink back down to the 4.9-5.0% yield range.
Georges Yared is the CIO of Yared Investment Research. For more growth stock ideas please visit the web site.
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