Stock Market: What is good news these days?

It's never simple to determine what the prevailing opinions are on Wall Street. Since the recession, the task has become even tougher. It's common for the same economic data to be hailed as a positive indicator by some analysts, while others cautiously compare the numbers to pre-recession data and wonder if the upswing will be enough. The truth is that no one knows yet how to gauge growth in the U.S. post-recession economy. There's no real benchmark established, and the investment pros are trying to understand a new era. The fact remains that the market continues to creep upward despite a declining dollar and inflation fears. The big questions remain, though: will inflation and slow growth inhibit the current rally? How do we define economic growth in this post-recessionary period? Here are some of the topics under review by investment gurus and economists.

Industrial Production
Data on August orders for durable goods made in the U.S. was released on Sept. 25. Manufacturing has been one of the economy's brightest spots, and analysts were cheered by an increase in industrial output of 0.8 percent in August. The Cash for Clunkers program was a factor; however, excluding automobile related statistics the index still logged a 0.4 percent increase. The Federal Reserve's data support the idea that production is on an upswing. At the end of September, the Fed noted that totals for commercial paper outstanding had risen for six consecutive weeks from July's record low of $1.07 trillion.

This pattern suggests that industries are rebuilding inventories and that businesses are beginning to borrow money for growth and expansion. Commercial lending is still down 35 percent from pre-recession times, and industrial output remains much lower than before the recession. 

Inflation
Market analysts continue to try to assess the possible effects of inflation on investors. Current inflation rates are within the range that allows the Fed to keep liquidity high and, as a result, support the current recovery. That's good news. But with Treasury bonds yielding about 3.4 percent, some experts believe that it won't take much upswing in inflation to sabotage meaningful investment returns and make investors nervous.

The market upswing
Some analysts see many reasons for optimism - at least for now. They think the U.S. market rally will continue and believe that the more measured pace of growth that we're seeing is healthier for the economy. Some argue that the markets traditionally make a comeback before we see strong economic growth. On the other hand, the pessimists are reluctant to apply traditional market patterns to the post-recession rally. A declining dollar overseas, coupled with a market rally, is hard for many analysts to reconcile.

On a positive note, many investment professionals believe there is plenty of cash on the sidelines as investors wait to recommit to equities, and that this will continue to propel the market upward.

In this process of figuring out post-recession benchmarks in our brave new world, much remains uncertain. But there is one point where both optimists and pessimists can agree: we won't see a return anytime soon to the period of major worldwide economic expansion that happened from 2004 to 2007.

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