In recent times, you could be forgiven for thinking that the American economy was about to embark on a long and glorious recovery. As property prices soared alongside consumer confidence, so too the nation’s unemployment continued to fall as it reached just 7.4% during July. With consumer borrowing also on a decidedly upward curve, the U.S. economy appeared to be fast approaching pre-recession levels of growth and development.
The current recovery has been mired in uncertainty and instability, however, as the nation and its consumers now brace themselves for a period of relative austerity. As under-employment and a diminishing average wage continuing to undermine the labor market recovery, consumer confidence has also began to fall as the Federal government look to increase the current rate of interest. Confidence dropped from a six year high at the beginning of August, beginning a downward trend that is expected to continue into the fourth financial quarter.
How the U.S. Stock Market is Being Impacted by a Strained Economy
This sudden downturn in consumer confidence and economic sentiment has been reflected in U.S. stocks, which are fast losing appeal among global investors. Although the S&P 500 rebounded earlier this week after 4 consecutive days of losses, the fall in consumer confidence and perception of stock options as a risk laden investment means that this is only likely to be a brief reversal of fortunes. It was predominantly triggered by the publication of improved earnings by TJX Cos and Best Buy, although these gains are unlikely to be sustained indefinitely.
In addition to growing economic uncertainty, investors are also being attracted by the security of U.S. Treasury Yields. While the value of these options dropped slightly between Monday and Tuesday, there were still at a two year high and offering far more reliable returns than traditional stocks and equities. Given the increasingly risk averse approach of global investors, stock options are generally being ignored in favour of more secure investment assets.
The Future Portents for U.S. Stocks
The future portents for the American stock market appear to be mixed, as retailers continue to report variable sales figures and earnings. While a handful of firms recorded gains this week, this followed on from a sustained period of loss and disappointment during the previous seven days. This is likely to continue in the current economic climate, and perhaps even worsen as consumers are likely to curb their borrowing and spending as confidence begins to dissipate. When you also consider that the Federal government may be about to wind down its stimulus measures, investors are left facing a difficult and largely untenable situation. With the minutes of July’s policy meeting due for imminent release, many investors are waiting to see the government’s proposals prior to making any form of financial commitment in stocks. Even then, it is difficult to see the current situation changing too drastically, at least until the global economy experiences a sustained period of growth or stability.
The Bottom Line for Investors
While the interpretation of economic data trends remains a crucial tool in the modern trader’s armoury, the conflicting nature of recent news releases makes this an extremely challenging exercise. As a result, investors are looking to consolidate their earnings and adopt an increasingly risk averse approach, as they prioritise secure bonds and Treasury Yields ahead of stocks, equities and currencies. If you are keen to understand the latest economic data trends prior to determining a clear future strategy, however, visit http://www.alpari.co.uk and view the latest news releases as they reach the market.