Market Outlook: 08-06-08

Robert Hsu, August 06, 2008

The U.S. economy is still trying to stay afloat as this week, more disappointing economic data was released about its struggling economy. The markets are struggling, after reacting poorly to the announcement that the U.S. unemployment rate is at its highest level in more than four years. The jobless rate climbed to 5.7% from 5.5% in June, as payrolls fell by less-than-forecast 51,000 jobs, according to the Labor Department. The July cuts bring the total drop in payrolls so far this year to 463,000.

Meanwhile, figures from the Commerce Department showed that the U.S. economy shrank at the end of 2007. It also said that the first quarter of 2008 grew 0.9%, and the second quarter GDP increased only a less-than-expected 1.9%.

Because of these dire economic reports, it is clear that the U.S.'s economy is in a recession. The last time unemployment climbed so much in three months was at the end of the last U.S. recession in 2001. Payroll cuts combined with decreasing property values, stricter lending rules and near-record energy prices has sent consumer confidence levels close to the weakest level in 16 years.

These economic problems are being reflected in second-quarter earnings -- of the S&P 500 companies that have reported results so far, earnings are down 21% on average from a year earlier. This is worse than the 11% earnings drop forecast by analysts a month ago.

But it is important to note that many of these company's earnings are better than expected, which has helped boost the market. Also supporting the market is the stabilization of inflation. The Fed said this week that is expects inflation to slow in the coming months. It was no surprise that the Fed kept its benchmark interest rate at 2% on Tuesday's meeting.

Because of these issues, stocks had a big rally yesterday. This was very much welcomed by investors, since the S&P 500 is down 22% from its peak in October, and investors have been battling with the credit crunch and financial crisis for months.

Going forward, I think that the market will continue to improve. I think that the market it building a base right now, and that rallies like we saw yesterday are signs that the market is coming out of its beaten-down state. For the best ways to profit from the rallies in the market, become a member of Asia Edge today.

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