Equities: on the road to recovery
Despite a few down sessions due to profit taking, the equity market was generally in an upbeat mode this week. After all, the chairman was positive and economic reports were mostly strong. Greenspan remained cautious in his words and tone, but market players interpreted his remarks as more upbeat than last week. Equity investors did show concern that the Fed may raise rates and hurt economic growth. However, if the economy is indeed on the road to recovery, albeit a moderate one, revenues and profits would still benefit despite modest gains in interest rates.

Note that all the major indexes, except for the Nasdaq composite, have finally surpassed year-end levels. And even the Nasdaq is close.

Bond prices plunge; bond yields soar
Bond investors are on the rampage. Yields soared in the past two days while prices plunged. Greenspan and economic indicators are worrying bond investors that the recession is over and interest rates will have to rise. Based on the rapid rise in yields over the past couple of days, one would think that the Fed is about to raise the federal funds rate target by 50 basis points in the next few weeks. Most economists don't expect the Fed to raise rates before the May or June meetings this year. When they do hit, the size of the increases are likely to be 25 points, in keeping with the Fed's incremental preference. However, all the Fed officials that went on the speech circuit this week noted that the recovery was likely to be moderate and that risks of weakness remain. Fed officials are particularly concerned about the lack of growth in capital spending.