We have crossed the halfway point of the year and the second quarter has come to a close and overall the quarter was a rebound from what was happening in the tail end of the first quarter. The Dow Jones Industrials Average rallied and gained over 1,500 points in just two months before stabilizing in June. So, what was the driving force behind the strong push in the equities market?
Key Economic Indicators
Economic Growth – The latest report on U.S. economic growth showed that in the first quarter, the economy was stagnant. The annualized increase in the real gross domestic production (GDP) was a meager 0.7% during the first quarter which was down from 2.5% in the fourth quarter of 2006.
Consumer Confidence – Two of the top items on consumers’ minds are gas prices and the housing market. With current average gas prices above $3 per gallon across the nation it has had an impact on some early summer travel plans. Even with gas prices and housing as detractors the low unemployment numbers and personal wage growth continues to support consumer spending.
Employment - Strong job figures continued for the second quarter.
Inflation - The Consumer Price Index (CPI) rose 2.7% in the first 12 months leading up to May 2007 with a core inflation of 2.2%. This is slightly above the 2% mark the Fed likes to see. Actual increases by month were 0.4% in April, 0.7% in May, and 0.2% in June.
Corporate Earnings – With earnings having been in the double-digits for quite a while the trend is expected to drop back down into single digits going forward.
Currency - The U.S. dollar continued to slide through the second quarter. The weak dollar has at least in part contributed to some of the very strong international returns.
Geopolitical - Continuing from the first quarter the tensions in the Middle East and the price and supply of oil are still of growing concern.
If you’d like you can compare this with the first quarter economic review. Also, be sure to check back tomorrow when I go into even more detail on the capital markets for the quarter.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Oh yeah, Sara, I'm sure you are feeling the brunt of it over there. I just read an article in the latest issue of Newsweek that said the United States is becoming Europe's Canada. Since the exchange rate is so favorable for them it is becoming a cheap vacation spot to travel to, shop, etc.
I have experienced the weakening dollar over here in Europe. It was awful when I visited the UK. I meal for a family of four at a TGI Friday's similar restaurant was $140.