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Update for the week ending June 12th

The Stock Market Has Risen But Economic Uncertainty Still Prevails

The stock market, as measured by the S&P 500 Index, has risen nearly 39% off the lows reached during the second week of March.  This rise occurred as investor perceptions regarding systematic risk, particularly the failure of the banking sector, began to abate.  Additionally, the growing belief that the worst of the recession had past and that the Government's various stimulus programs would be successful in restoring economic growth also led to the stock market rally as investors began discounting an economic recovery.  Generally, most economic series are still deteriorating, but at a slower pace than late last year and earlier this year.  Potential areas that may turn out to be "speed bumps" to the eventual economic recovery are the rise in energy prices that has occurred in recent months with oil increasing from about $33 per barrel in March to $70 per barrel last week and the increase in interest rates on U.S. Government securities.  Ten-year U.S. Treasury rates have risen from around 2.0% at the beginning of the year to 3.86% last week.  I believe that the Government would have preferred that interest rates remained near their historic lows for a longer period of time to assist in stabilizing the housing market and stimulating economic growth.  While investor moods are profoundly different today compared to just a few months ago, great uncertainty with various economic cross-currents still exist.

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