For the last few weeks we have been wondering why the market keeps rising in the face of a weakening economy. Investors have been assuming the economy is going to turn around in the second half of 2009 or at least by the beginning of 2010. We have our doubts.
Home Depot and Hewlett Packard don't see any improvement in the business environment. Our trading partners' economies are falling off a cliff. Mexico's GDP was down 21.5%, Germany's was down 14.4%, and Japan's dropped 15.2%. It will be hard to grow exports when the buyers of our goods are in dire economic shape.
Today the Fed released its April minutes and they expect a steeper recession and a slower recovery than their previous pronostications. With all this good news, what are we missing? The stock market has sucked in some of the cash burning a hole in investor's pockets. The short covering rally got us going and the mad dash to not miss the rally by investors with a plethora of cash kept it going. The rising market brought us rosy colored glasses about the economic prospects and stocks moved higher. When the disappointing news about the economy continues to flow in for the next few months stocks could retest the old lows. Buyer beware.
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