Major Stock Indexes Rise
Good tidings! Major stock indexes are up 60% since their March lows. The rebound in our equity markets has been critical on several fronts. First, it has helped stem the losses seen in retirement accounts like 401(k)s and IRAs. These retirement accounts are increasingly the No.1 funding vehicle for retirees, so recouping any losses here is a big help, especially to the baby boomer demographic. (To see how far the markets have come, check out The Fall Of The Market In The Fall Of 2008.)
GDP Growth Returns
GDP growth of 3.5% in the third quarter was a good start, but we still need consistent GDP growth over several quarters to claim economic victory, and we need it to be more organic, not artificially spurred by government stimulus and one-time fiscal measures. As we look forward to 2010, this will be the biggest catalyst to getting us out of this recession and bringing down our nosebleed unemployment level. (To learn more about what GDP can tell us about market health, see What is GDP and why is it important?)
Banks Repay Their TARP Loans
Ten of the banks that received Troubled Asset Relief Program (TARP) funds were allowed to repay $68 billion to taxpayers in June, and most of the major recipients have committed to fully repaying their TARP loans over the next 24 months. Also, as the stock prices of major banks rise, the chances of the government earning a good return on its TARP loans and direct investments only increases.
Home Prices Are Stabilizing
While home prices are still down 30% from their peak, prices in many geographic areas ticked upward in August, September and October according to the benchmark Case-Shiller Index. If home prices can stabilize and even (gasp!) begin to rise in 2010, the hundreds of billions in mortgage-backed securities (MBS) can begin to improve the balance sheets of our battered financial institutions rather than deteriorate them, as has happened for the past two years
First-Time Homebuyer Tax Credit Is Extended
The $8,000 tax credit for first-time homebuyers was scheduled to end on December 1, but those who didn't get on board in time have plenty of reason to be grateful. President Obama recently extended the credit until June 2010 in an effort to help to spur the housing market further.
Regulatory Scrutiny Has Increased
The Securities and Exchange Commission (SEC) has been near the top of a long list of entities that deserve a good finger-wagging for errors of submission or omission leading up to the financial crisis. But new measures are being put into place to protect investors from fraud and negligence by their financial advisors and corporate CEOs.
Inflation Is at Bay
Inflation has yet to appear, which is keeping interest rates low. This is helping the U.S., as it must borrow heavily to fund its growing budget deficits. Most economists do agree that inflation is inevitable down the road given all the money being sloshed around Washington and Wall Street, but there seems to be enough slack in the economy that we may have a few more quarters before inflation creeps up on us.
Corporate Profitability Is Getting Stronger
Profit margins have been strong at corporations over the past few quarters as inventories have been depleted and costs wrung out of business models. We still need to see more demand in the form of revenue growth, but stabilization and earnings per share (EPS) growth is good and companies should come out of this whole mess stronger, smarter and looking to hire if conditions continue to improve.
The Rest of the World Is Resilient and Growing
Another good sign: Many foreign markets are doing quite well. GDP growth in China and India is tracking above 7% for the year, Brazil is growing and will begin its mega infrastructure roll-out to prepare for the Olympics in 2016, and smaller emerging economies in South America and Asia are holding steady and/or growing.
We're Still Standing!
Last year at this time, many wondered if our financial system would even survive at all. It did (thank goodness), and that may be the best blessing of all. Give thanks our worst financial fears failed to materialize.