Stock Market Signals Economic Recovery

Today, a great day at Wall and Broad. The Dow is higher than it has been since November, the S&P broke through 1,000 for the first time since November, and the NASDAQ went over 2,000, where it hasn’t been since October 1.

Recovery is underway. I have waited until the FOX INDEX passed the halfway point from market bottom to full recovery to alter the INDEX; it now measures as a percentage the distance traveled from the market’s March 9 bottom, while continuing to mark the distance the INDEX remains below its pre-crash healthy level (12,000 Dow, 1,300 S&P, 2,500 NASDAQ). As of today, the distance traveled from the bottom to healthy has reached 52%.

The stock market is a leading indicator of how the economy will travel over the next six months. Unemployment, by contrast a lagging indicator, continues to get worse. Yet housing is the key to real recovery, and now there is solid evidence the housing crisis that triggered our current Great Recession is reaching bottom:

➢ U.S. home prices rose in May, the first monthly increase in three years.

➢ the annual declines in home prices—they have plunged 32% on average from their 2006 peaks—slowed in May for the fourth straight month.

➢ Sales of both new and existing U.S. homes rose in June for the third straight month.