01 Oct 2004 A Fresh New Quarter

Good riddance to the third calendar quarter which ended yesterday with the S&P 500 down .70% and the NASDAQ down 7.24%.  The worst of the declines came in July and were caused in part by rising crude oil prices as well as disruptions caused by four major hurricanes in the South and East.  Investors spent all of July and half of August ratcheting down their expectations for growth; as car sales, home sales, consumer confidence, and consumer spending all weakened. 

But by mid-August many of those trends began improving as did stock indexes.  As growth projections were adjusted downward so were inflation fears of bondholders.  Interest rates declined in August and September, which continued to sustain the housing boom.  New home sales in August surprised economists with a 9.4% surge boosted by the lowest mortgage rates in four months.  The average 30-year fixed rate mortgage was 5.87% in August, down from 6.06% in July.

Construction spending in the U.S. rose .8% in August to a record annual rate of $1.02 trillion due to improving business confidence and lower borrowing costs.  The increase was the seventh straight month of improvement and followed a revised 1.1% increase in July.  Economists remain behind this growth curve as they expected only half as strong an increase.

The presidential race went into high gear last night with the first of three debates.  Instant polls gave Kerry the win for the debate on style points, but did not significantly alter the way likely voters would cast their vote.  No knockout blows were delivered, although Kerry likely tightened the race a bit.

The current wave or economic news continues to be mostly positive.  Oil prices are coming down and will likely continue to drop with improving supply.  Corporate earnings announcements for the third quarter will commence in the next few weeks.  Industry leaders should compare well with analysts’ projections as expectations are generally lower and more reasonable.  Shifts in the presidential race, oil prices, major developments in Iraq and Afghanistan, terror alerts, and the like will buffet the markets, but the stronger currents of the economy should keep the markets on a course of improvement during the coming months.