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Market & Economic Brief
Early August Report
The U.S. stock market rally that started in the middle of July and continued in early August, in our analysis, lacks the components necessary to support sustained price appreciation. Trading volume continues to be light and we have yet to see an advance/decline ratio high enough to support the action. The stock leadership that has emerged is thin and inconsistent. Also, the S&P 500 P/E ratio, based on Q3 earnings estimates, is a little high at just above 20. International stocks have had an even tougher time in the last month, a potential indication of a global slowdown. World commodity markets have been hit with both price corrections and a strengthening dollar. The Powershares DB Commodity Index ETF is down just over 18% in the last month.
The U.S. economy continues to be sluggish but the slowdown in other economies, especially the Euro zone and Japan, has foreign banking authorities talking about rate cuts and stimulus programs which has helped the dollar rally.
The strength of the dollar relative to some developed market currencies has contributed to the dramatic price decline of many commodities, which may help relieve future inflation pressures. The U.S. inflation rate currently sits at an uncomfortable 5.02%.
There are some early signs the residential real estate market may be stabilizing. Price declines have slowed and even increased in the Pacific region from April to May. Pending sales were also reported to have rebounded in June.
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