Dog Days of Summer For Investors

Last week, the Fed said what every American knows: the pace of the economic recovery is slowing. Whether the economy technically moves into double-dip territory (or a continuation of the "Great Recession"), it won't matter to millions of Americans who are underwater on their mortgages, out of work, or both.

The dog days of summer are likely to continue today -- US stock futures are pointing lower, as investors weigh the impact of a good day in Chinese markets with a disappointing performance from Europe.

There's clearly a hangover effect from the rotten news of last week. My Silicon Valley friend says that the Fed's words were not the scariest of the week, rather those of Cisco's CEO were more worrisome: "there are some challenges that are contributing to an unusual amount of conservatism and even caution...We are seeing a large number of mixed signals in both the market and from our customers' expectations, and we think the words unusual uncertainty are an accurate description of what is occurring." Cisco was early in predicting the depth of the recession, so it would be wise to hear what the company is saying: caution is warranted!

For those of you who wanted to tune out the noise during the summer, but now feel compelled to sit up and take note of where we stand, here are some of the reasons that the slowdown is occurring:

• Federal stimulus spending is winding down: 800 billion dollars can only go so far. Thus far, the only additional stimulus has been the extension of the qualifying dates for unemployment benefits.
• End of the inventory correction: When the recession hit, businesses practically stopped buying everything. As the economy improved, there was a desperate need to restock. With that process nearly complete, it's back to basics, especially for manufacturers.
• Consumers are saving again and spending less: Gone are the bad ol' days of 2005, when consumers used home equity like an ATM and savings rates were negative. The personal saving rate is over six percent and Americans are scrambling to pay down debt. This is a terrific long-term trend, but not great for the economy in the short-term.
• Housing is still in the doldrums: we'll get two reports this week on housing--August homebuilder confidence today and July housing starts tomorrow, both of which will likely confirm that without the homebuyer tax credit, the housing market is stymied by massive supply, which will keep downward pressure on prices.
• Slowdown in China and Europe: China has stepped on the brakes after surging and Europe (especially Southern) will be digging out for some time.

• DJIA: 10,303, down 3.3% on week, down 1.2% YTD
• S&P 500: 1079, down 3.8% on week, down 3.2% YTD (down 4 consecutive trading days)
• NASDAQ: 2173, down 5% on week, down 4.2% YTD
• September Crude Oil: $78.98, down 6.6% on week
• August Gold: $1217.40, up 0.96% on week, to the highest settle since June 30th

Image by Flickr User mikebaird, CC 2.0

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated business analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and chief investment officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

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