Equity investors eye recovery
This holiday-shortened week caused equity investors to book some profits for the season. Nonetheless, the markets managed to pick up a bit from last week's levels. For the most part, earnings announcements have shown that companies' balance sheets are a bit better than expectations. Moreover, equity investors continue to look past this season toward the first half of 2002. That is where they see corporate profits in the black.

Interest rates keep on rising
Last week's sell-off in the Treasury market was not the end. Treasury prices continued to drop during the week, pushing yields higher still. Bond investors are acting as though the long war on terrorism has already been won, that consumers will resume their old shopping habits, and the Federal Reserve will stop easing credit conditions. Bond investors are further worried that the economic stimulus package proposed by the federal government will lead to heavy rounds of borrowing thereby increasing the supply of Treasury securities. But Congress has not passed any package yet, so this fear is definitely premature. As to the Fed, they would like to see some real recovery in retail sales and industrial production before they feel that risks are no longer weighted toward weakness. The Fed, in fact, still has ammunition left in their federal funds rate gun, and after all is said and done, even with a revival in consumer spending, this shopping season is still likely to be rather anemic by historical standards.