The Market This Week

Market Snapshot

Dow                        12,381.02            +96.72                        +0.79%

Nasdaq                     2,303.35            +3.57                          +0.16%

S&P 500                     1,353.11            +10.58                        +0.79%

As Wall Street took the day off on Monday due to President’s Day the world markets were in full swing. European markets rose higher in response to speculation that banks may raise dividends and possibly increase their investments. Japanese stocks moved higher while the Chinese markets shook off initial losses when the securities regulator  granted approval of two new equity funds and the wealth management operations of nine mutual funds. Tuesday was back to business as Wall Street gave up initial gains and closed the session mixed as for the first time oil advanced above $100 a barrel as well as increasing fears of inflation. What scared investors the most about the increasing oil prices was the effect on the already weakening consumer, which might lead continuing drop in spending. Investors also worried, however, that rising inflation could also cause the Fed to reverse its’ strategy of cutting interest rates.

Wednesday was all about the numbers, or the CPI to more exact. The Labor Department reported that the Consumer Price Index (CPI) rose 0.4 percent last month while core inflation gained 0.3 percent. Such increases continued to reflect the increasing prices on expenses such as medical care, education, and clothing to name a few. Numbers on construction of new homes and apartments also rose higher by 0.8 percent and applications for building permits declined by 3 percent, often a good trend indicator in construction and housing. The effects of the negative numbers spilled out toward the end of the week as the Market gave up ground until Friday when Wall Street staged a sudden turnaround. What was the cause? CNBC reported that a plan was being drawn up to bailout troubled bond insurer Ambac Financial, which could be announced as early as Monday or Tuesday of next week. Ambac shares rose 16% on the news.

What to take away from this week? A volatile week to be sure but also an extremely concerning one. Inflation was major fear of investors but even more threatening is stagflation. The weakening economy, slowing growth, coupled with rising prices seems to spell out trouble for the United States in the coming months. Eyes are now on the Fed’s next meeting scheduled for March 18th. It will be interesting to see what actions they take next. Investors should look at The Feds’ decision as a strong indicator for what to expect in the markets next few months. 


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