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Market Is Holding Gains Despite Financial Concerns

The deficit with China rose to $20.02 billion - Up by 2.3 percent from Apri

July 15, 2007       Leave a Comment
By: Jerry Cole - Retirement, Investment

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The stock market is climbing that proverbial "Wall of Worry."

The stock market is climbing that proverbial "Wall of Worry" as it has so often done in times past. Despite all of the concern over the financial industry's problems with subprime loans, June retail sales falling 0.9%, and crude oil for August delivery right at $74/bbl, the market established a new all-time high of 13861.73 yesterday. It is holding that gain tightly today with just two hours to go before closing.

Add to the negative worries the geopolitical concerns facing our nation and the huge trade deficit that only seems to grow, and one wonders if the rally in the market can be sustained. The trade deficit rose to its second highest level of the year, reflecting higher prices for foreign oil and continued appetite for Chinese goods.

The Commerce Department reported that the deficit rose to $60.04 billion, up by 2.3 percent from April. The deficit with China rose to $20.02 billion.

So far this year, the deficit with China is running 17.2 percent ahead of the pace set last year. And the IEA (International Energy Agency) reported it expects global demand for oil to rise 2.5% next year, the largest gain in four years.

So when the market seems to be running contra to what you hear and read in the media, you wonder what is the rationale? Obviously more investors see the glass half full than see it half empty. They see that interest rates and tax rates are still favorable for growth. Unemployment remains near historical lows and the economy continues to create jobs. Another factor that did not get a lot of press this week was the estimate of the federal deficit falling to $205 billion.

The estimate would bring the deficit to less than half of what it was at its peak in 2004. The early quarters of the federal budget year that began in October have shown continued revenue improvements. Another positive report came this week from the University of Michigan. The Michigan index of consumer sentiment jumped to a 92.4 reading for July, its highest in six months and well above the reading of 88.6 economists had expected. The reading for June was 85.3, the lowest in 10 months.

So, as always, you have to take the conflicting pieces of information and mix them and try to make some sense of it. Keeping some sense of balance is important. For instance, the 284 points up we witnessed on Thursday represented a 2.0% move in the market.

This is a dynamic day in the market to be sure, and as up days go, it was very respectable. And fortunately we have more up days than down days. The 284 points at first blush might seem volatile, but remember it took only 508 points back in October of 1987 to move the market down 22.6%. We are working with a market today that has 6 times more points in it than it had in 1987.

Thus I say again, know your risk tolerance and keep the right balance of equities in your portfolio! Also keep your eye on that inflation ball. And don't follow the crowd -- it's usually wrong!

I invite your questions.

Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)

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Jerry Cole - Retirement, Investment

Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC.
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