Following a very strong July (7% increase), the Stock Market maintained its’ rally during the first 2 days of August. It rose almost 2% on Monday, the Dow Jones closing at 10,674, its highest level since the middle of May 2010. The Standard & Poor’s 500-stock index was up 24.26 points, or 2.2 percent, at 1,125.86, whilst the NASDAQ rose 40.66 points (1.8 percent), to 2,295.36.

According to Tuesday’s New York Times, “the initial impetus came from economic data in China that suggested that manufacturing there may have cooled enough to enable the government to ease off policies aimed at keeping the economy from overheating. Strong quarterly profits from two big European banks gave another boost. And better than expected manufacturing data in the United States and a strong showing by energy and materials stocks propelled the broad market higher still.”

Unfortunately, the market was unable to build on these gains on Tuesday. The Dow Jones industrial average fell 38 points to close at 10,636, whilst the NASDAQ lost 11.84 points, to finish at 2,283. The S.& P. 500 slipped 5.40 points, declining from an 11 week high, to close at 1,120.46. The declines were caused, according to Bloomberg, by “weaker-than-estimated data on home sales, factory orders and consumer spending,” which “showed the U.S. recovery lost momentum heading into the second half of the year.”

Robert Pavlik, chief market strategist at Banyan Partners in New York, is quoted in yesterday’s New York Times, “there’s a lot of uncertainty on the part of investors because they see economic reports coming in a bit weaker than earlier this year. We’re still on a path to recovery, but it’s going to be a very slow-growth recovery.”

So what should we expect going forward? Household budgets are under strain because of the weak job market. Lower consumer spending is compounding the problem. Dan M. Greenhaus, quoted in yesterday’s New York Times, said that “it reinforces the general idea that consumers are busy deleveraging and saving money.” Treasury Secretary Tim Geithner said on Tuesday’s ABC's "Good Morning America" that the nation's jobless rate could rise for a few months before it falls.”. Therefore, expect more volatility going forward; "It's the same battle between positive earnings and negative underlying fundamentals in the real economy", says Dan Cook, senior market analyst at IG Markets on CNN Money.
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