Increasing optimism gave major market indexes a boost yesterday, letting the DJIA flirt with 10,000. Though too early to reflect a general trend, the move up coincides with news suggesting that the global economy may have stronger legs than first thought.
A Reuters’ report showing a significant increase in China’s exports helped allay fears that the world’s third largest economy could get throttled by the ongoing European debt crisis. Europe is China’s biggest export destination, having recently surpassed the U.S., but we depend upon both China and Europe for our own exports. If China falls into recession, it will be an additional burden on the U.S. The positive export numbers for China suggest Europe is still standing, a double boost for the U.S.
Another lift was provided by Federal Reserve Chairman Ben Bernanke, who just testified before the House Budget Committee. Bernanke said that economic activity that began in the second half of 2009 has continued at a moderate pace, and that it appears to be on track to continue to expand this year and next. Bernanke went on to downplay the possible effects on the U.S. of European debt problems. Moreover, a Federal Reserve that sees the economy growing, but not fast, suggests moderation in interest rates.
In addition, the euro strengthened, indicating at least a small increase in confidence in the European economy. Traders have been keeping a close eye on Europe as governments there eye various ways to reduce spending. A slow European economy could help keep interest rates low, and could also restrain oil prices, but it would also cut into trade.
The past 5 weeks have been rough for investors, and the threat of a double-dip recession is still on the table. But positive fundamentals appear to be attracting money from bonds and gold back into stocks, and it may be a sign of more to come.