Market sentiment is better than it was two years ago, which means that the present market rally may have further to go. It could easily be thrown off course by negative news about either unemployment or the federal budget deficit, which is hardly surprising.
According to Gallup, “When asked to evaluate the impact of 15 factors on the U.S. investment climate, investors are most likely to say the federal budget deficit (71%) and unemployment (71%) are `hurting it a lot.’ These are followed by energy prices (60%) and the financial condition of state and local governments (58%).”
The priority of the concerns could change places, but most of those on the list are inextricably interdependent. A cut in federal spending may cause a drop in government employment. Financial problems at the local level may trigger a need for money from the federal government to bail out troubled municipalities, and perhaps even states. Congress has begun to discuss the issue of local and state bankruptcies. A bankrupt state could shed unions workers as quickly as The Big Three did three years ago.
Energy prices have become the pivotal issue in the economy, which was not true just one month ago. The federal budget, local costs, and unemployment get thrown into chaos if oil prices move toward $120 and gas back to $4, where it was in mid-2008. Few economic models show a recession brought on by energy trouble. It would cause consumer spending to collapse again which would put pressure on jobs and tax receipts. The credit crisis of 2008 and 2009 would give way to the energy crisis of 2011.
It has been too many years for people to remember since the US economy has lurched from problem to problem as it is today.
Methodology: Gallup Daily tracking interviewing includes no fewer than 1,000 U.S. adults nationwide each day during 2008.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks