Dollars and Sense: Markets continue to soar, but reasons for caution abound

More records. Another week goes by, and we have another week of records for the Dow Jones Industrial Average and the Standard & Poor’s 500. The S&P stock index crossed the 2,000 level for the first time ever on Monday. Since the bull market began in early 2009, the S&P has nearly tripled in value. It is up almost 8 percent for the year. The Dow is up a bit less, about 4 percent. Stocks have rallied four straight weeks as investors are encouraged by signs of improvement in the U.S. economy.

Signs of life. And what are some of those signs? Here’s one example: Consumer confidence rose for the fourth straight month. The Conference Board’s closely watched index hit a seven-year high in August, though I should add that if you drill down into those numbers, consumers still seem concerned about their personal income. The Conference Board numbers seem to be saying, “The economy is doing well, but I’m personally doing just OK.”

Signs aligned. Add to the consumer confidence number two more positive signs: Orders for durable goods jumped a very robust 22.6 percent in July, and the economy grew faster than previously thought in the second quarter as the government revised the growth in gross domestic product upward to 4.2 percent. Previous estimates pegged a 4 percent annual growth rate. You may remember that last week I told you we would be getting this consumer confidence number, as well as a durable goods number and a revised GDP number. I said if all three of these numbers pointed in the same direction the markets would move that direction too. And that’s exactly what happened. It didn’t hurt that the National Association of Realtors said home sales rose, and first time applications for jobless benefits fell to 298,000.

Reasons for caution. So with all this positive news, was there anything to induce caution this week? Absolutely. That robust durable goods number was almost completely due to strong aircraft orders to a single company, Boeing. If you take those orders out, which unexpectedly hit all at once, the durable goods number was actually slightly negative. And troubles in Ukraine continue, with Russia sending ground troops in. That news sent the markets down a day or two last week despite the strongly positive economic news. Still, August was a pretty good month in the markets, and I guess we should celebrate our victories when we can.

The week ahead. We get a lot of reports this week. Construction spending, auto sales, truck sales, and more than a dozen more. But on a scale of 1 to 10, with 10 being a report that moves the markets, all these reports are a 2 or 3. But on Friday we get August’s unemployment number. That’s the biggest economic report we get most months. Call it an 8 or a 9. Last month, unemployment ticked up a bit to 6.2 percent. If it doesn’t drop this month, I think lots of analysts and traders will find that a disappointment. So keep a sharp eye out for Friday’s unemployment report.