Why The Stock Market Rally is Real!

Since the credit crisis began in August 2007, experts have agreed that there is no magic bullet solution. The general view is that world economies will eventually recover but the healing process will take time. Along those lines, here is REAL data that represents REAL steps in the right direction.

Here are two recent examples:

  • Global credit markets continue to thaw as government cash injections and interest rate cuts kick in. Last Friday, the London interbank offered rate (Libor) – the interest rate banks charge each other for loans – fell the most in eight weeks to 0.85% for three-month U.S. dollar loans. Libor, which determines rates on everything from car loans to mortgages, peaked at 4.82% at the height of the financial crisis last October. Last Friday’s fall in three-month Libor was the 33rd consecutive day of declines – the longest stretch dating back to January 2008.
  •  Last Friday also marked the 10th consecutive day of gains for the Baltic Dry Index, which tracks ocean shipping rates for commodities. This was the longest advance in three months and the index hadn’t been that high since last October. The index is followed by economists since it can provide insight into the level of demand for raw materials in global markets.

Whether it’s banks starting to lend again, demand for raw materials picking up around the world, improved housing affordability in the US or the fact that the stock market rally since March 9th is now the largest and second-longest rally in the past 18 months, it seems step by step the pieces required for recovery are falling into place (albeit baby steps).

That said, the recovery path could still look like “one step forward, two steps back” for a while as we were reminded last week by weaker than expected April retail sales in the US and soft Q1 manufacturing sales data in Canada.

However, we can see that the LIBOR rate, the key indicator for credit movement, has decreased drastically.  By all economic measures, this is a great sign for business and as such, a good sign for investors!

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