Are things getting better?

The stock market has gotten out of its funk for several days in a row. Starting after the fourth of July weekend, the major indexes have been up every day. US Gov't bond yields have been up over the same period.

On July 2, 2010, the S&P 500 closed at 1,022.58. On July 13, 2010, it closed at 1,095.34. That's a close to close increase for the index of about 7.12%. The Dec. 31, 2009 close was 1,115.10 (a better starting point might be 1,126.42), so it's still down a bit for the year.

Bond yields have recently breached several psychological levels. The 10 year US Treasury Note has been as low as 2.88% in recent time. The July 2, 2010 close was 2.98%. The July 13 close was 3.11%. That is a close to close increase of about 4.36% in the 10 year yield. The yield at the end of last year was 3.84%.

The Bullish:

Earnings have been doing well against revised forecasts. Intel, in particular, had company best quarterly revenue and margins. Alcoa beat their much revised earnings projections, and CSX reported good results.

Overall, earnings appear to be heading in a good direction for Q2.

Low bullish sentiment and high bearish sentiment are often seen as a contrarian indicator as people are often at their most pessimistic during the worst periods. Bearish sentiment is up. As the article mentions, the bearish sentiment is as high as it's been since March 2009 (near the bottom), but this level was reached in November 2008 and continued its fall.

The yield curve is not inverted, nor is it close to getting there. It will be very difficult for short term rates to pass long term rates with the Fed holding its rates near 0%.

Wall Street is hiring.

The Bearish:

State budgets. See my last post about the GA state budget. There are state budget shortfalls all over the country. These shortfalls are resulting from weak tax revenues and withdrawal of federal funding sooner than anticipated.

We are not officially out of recession. The lack of an inverted yield curve generally leads one to believe that a new recession is not about to start. However, since we have not officially left this recession, that indicator may not be reliable.

Housing is bad. The rich are defaulting on mortgages (registration required) at a very high rate. The rest are defaulting on mortgages at a very high rate. Minority borrowers have been especially hard hit. Housing values are down. New home sales were at a record low in May.

Unemployment is even worse. The June rate fell to 9.5% from 9.7% only because the size of the labor force used in the calculation dropped by 652,000 people. Nearly half of the unemployed have been that way for more than 6 months. The longer a person has been unemployed, the lower his employment prospects should jobs become available. The long term unemployment during this recession is creating the "New Poor".

Financial reform doesn't appear to be strong enough. Since financial reform has been watered down, it leaves plenty of room for the next bubble to inflate.

Retail sales are down again for June. Since consumer spending makes up around 70% of the US economy, this is a bearish indicator.

The ECRI's weekly leading index is down. It hasn't reached the level of predicting a downturn yet, but it's getting close.

The United States public debt might surpass GDP in 2012.

Overall:

I'm bearish, but that doesn't mean I'm right. I don't really see a clean way out of the worldwide debt problems. I don't see how the US states are going to make the transition to significantly lower revenues without some serious pain. However, companies are making decent profits, and the stock market and bond rates seem to be heading in the right direction. Many people may recover, but the new poor may be that way for life.