Wednesday, July 15, 2009
After a brief correction (10-yr T-bond yields fell from a high of 3.95% on June 10th, to a low of 3.30% on July 10th, and the S&P 500 fell 6.4% over the same period) driven by doubts about the economy's ability to recover, we're now back in bullish mode: T-bond yields are up 28 bps and stocks are up almost 6%.
The news has been better than expected (or perhaps better than feared). Companies like Goldman Sachs, Intel, and Apple are making lots of money. The economy is beginning to turn up. Housing is probably bottoming (the Bloomberg Home Builders Index has been flat for nine months now, and is up 70% from its November low). Deflation is dead. Manufacturing conditions are improving.
Higher interest rates are a sign of economic health, not a threat to the economy. They are also signaling that the Fed should start raising short-term interest rates before inflation becomes a problem.
Posted by Scott Grannis at 11:35 AM