The Worst Of Credit Crunch May Be Over
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Oil hit another record high but has since pulled back. The dollar showed some strength and corporate earnings were pretty good.
Boeing blew away earnings estimates. Ford posted a surprise profit. And even though investors were disappointed by Microsoft’s quarterly forecast, they issued a healthy outlook for its next fiscal year. The worst of the credit crunch may finally be behind us.
No more major bombshells from financial institutions, a sign that the Fed’s six rate cuts since last September and massive injections of liquidity into the banking system may be working.
In fact, Merrill Lynch indicated yesterday that it would pay its dividend this quarter, relieving investors who were anticipating a cut. There seems to be cause for optimism about the markets. The Dow is active again and the bond market is not acting as if it is in recession anymore.
Bonds have fallen in recent weeks, raising the yields. Bond prices and yields move in opposite directions and lower yields are usually associated as a sign of economic weakness. And for consumers, even though it’s still a painful time because of rising food and gas prices, the first of the government’s tax rebate has hit mailboxes.
Of course, it still is a rough economic environment. The surging price of food threatens to disrupt U.S. consumer spending patterns and the global economy. That’s where the Federal Reserve will hopefully step in. Many fear that more rate cuts could lead to a further weakening of the dollar, which in turn, could fuel more speculation in the commodities markets and drive food and gas prices even higher.
So higher interest rates, not more cuts, might be exactly what this market and economy needs. Hopefully, the Fed will send a strong signal to investors Wednesday that it is getting ready to sit tight.
