More and more economists are talking about recession - or at least a hard landing in light of the fourth quarter drop in production and ongoing drop in consumer sentiment. While private economists are cautious, Fed officials on the speaking circuit this week were less pessimistic. It is hard to tell whether they were speaking "up" the economy or really believe that conditions are fine. Bond and stock investors weren't quite sure whether it meant that an aggressive easing policy was still in play. The general consensus, though, seems to be weighing in with a 50 basis point rate cut in the funds rate when the Fed meets at the end of the month.
Mixed market
Despite warnings of poor earnings performance among many industries, the NASDAQ composite managed to post pretty good gains for the second straight week. On Tuesday, the composite index dipped slightly but solid gains were posted on Wednesday and Thursday. In contrast, the Dow Jones performance has been choppier since the beginning of the year. Except for a couple of days surrounding the Fed's surprise rate cut, the Dow Jones Industrials have traded below year-end (December 29, 2000) levels through the first three weeks this year. It has also fallen behind other major indexes besides the NASDAQ, including the S&P 500 and Russell 2000.
Treasury prices fluctuate during week
Treasury yields started the week on a high note and dropped through Thursday. On Friday, yields picked up again, although they managed to fall from the previous week. Economic news was generally favorable, supporting further Fed easing in coming weeks - and perhaps over the next few months as well. But the anemic economic data was somewhat offset by Fed officials who insisted that the economic outlook was favorable over the year. Market players are still in the process of assessing whether the Fed will lower the federal funds rate target 25 or 50 basis points at the end of the month when they meet. Right now, the consensus is probably weighted towards the larger decline. Bond investors will have to wait until the end of the week to get more information on the economic front with the employment cost index on Thursday and durable goods orders on Friday.
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Manufacturing, consumers in the dumps
