Big Apple ripe. I spent a couple of days in New York this week, and I can tell you that with the stock markets at all time highs, the Big Apple is feeling pretty flush. The hotels are full, and getting premium rates, and the cabs are hard to get even on pretty days, which Wednesday and Thursday were. Unemployment in New York is the lowest since 2009 (although it is still a stubbornly high 7.4 percent). Of course, I wouldn’t say all of it, but as Wall Street goes, so goes New York City’s economy. We saw a bit of a downtick toward the end of the week, but we have been setting record highs one after the other with both the Dow and the S&P 500 over the past few weeks.
Real reasons. The stock market run-up has real causes. This week the Congressional Budget Office revised downward its estimate of the federal deficit to $642 billion. That’s still a lot of billions, but it does represent a cut of nearly 50 percent from the deficit seen just two years ago. And we got some decent economic data this week. Tuesday’s report from the National Federation of Independent Business said conditions improved for its members in April. Strong April retail sales reported Monday also seems to be convincing traders that the economy continues to improve.
Irrationally exuberant? All that sounds good, but at what point does this market become “irrationally exuberant,” to borrow a phrase from Alan Greenspan, the last Fed chairman? Some analysts are saying any minute now. I’m hearing more and more analysts saying that a correction in the run-up would blow some of the froth off the markets. So I can’t say whether we will or won’t have a correction in the market, but I can say that we’re at the point where a downturn might be better for the long-term health of the markets than this continued surge.
Global outlook. One excuse for the U.S. markets to take a breather might be the international picture. We got some good news this week from Japan. Estimates now call for an unexpectedly strong 3.5 percent annual growth rate this year. That said, Japan still has a lot of recovering to do to make up for a 20-year period of stagnation. Europe’s problems, though not much in the news in the past few weeks, don’t seem to be getting much better. France has officially slipped back into recession, and unemployment there has risen to 12 percent. Spain and Greece have unemployment topping 25 percent. We’re seeing inklings that global problems are having an impact here. Chevron, to cite just one example, has been volatile this week because of its exposure in China, where growth is also slowing.