During the past week, there were promising signs that the economy is improving as 1) the Chicago Purchasing Manager’s Index (PMI) increased from 62.5 to 68.6 – the best performance since the 1980s and 2) the number of Americans filing for unemployment benefits dropped below 400,000 for the first time in over two years. At the same time, the number of home foreclosures rose by 31 per cent compared with the second quarter of 2010 and increased by 3.7 per cent when compared with 2009 - these foreclosed homes add to the 1.2 million of properties in the process of foreclosure.
MY TAKE: The U.S. Federal Reserves’ announcement of quantitative easing in late August has had a positive impact on equity market performance and may be driving improved economic performance as well. However, it is likely that additional work remains in restructuring consumer and commercial real estate loans and while unemployment is becoming “less bad”, signs of improvement are needed. In the near term, global economic data will likely support both bullish and bearish scenarios with the potential for “unintended consequences” from varied government stimulus and intervention efforts remaining a wild card. How investors interpret these dynamics will determine how markets perform during 2011.