Friday, July 13, 2007

Dow Sets New Record

As I mentioned on Monday, earnings season is upon us, as public companies release their quarterly earnings reports and guidance for the upcoming quarter. So far, investors seem to like the guidance they are receiving, because the Dow Jones Industrial Average rocketed to a new high of 13,861.73, gaining 283.86 points on the day. This was the best one day gain for the index in four years. Mergers and acquisition activity, as well as solid retail sales and lower crude oil prices helped fuel the buying. The Standard and Poor's 500 also posted a record close of 1,547.70 gaining 29 points, while the NASDAQ added 49 points to close at 2,701.73.

The Bush Administration released its midsession budget review on Wednesday, and the estimates are that the budget deficit should be $205 billion for for 2007, which is better that 50% less than the deficit in 2004, which was $413 billion. While those numbers may seem astronomical, it is important to note that they represent 1.5% of the total share of the economy. This is well below the 40 year average budget deficit of 2.4%. The Congressional Budget Office says tax collections are so strong, that the deficit could actually be under $200 billion by years end.

One reason for this strength in tax revenue is due to the tax cuts in 2003 on investment. While tax cuts take some time to work their way into the economy, the main reason the deficit is shrinking is due to increased tax revenues. Federal tax receipts have increased nearly $700 billion since 2004, which is the largest ever tax revenue gain over a similar period of time. Going forward, the biggest risk to continued deficit reduction is not the war on terror, but rather the potential economic slowdown due to protectionist policies on trade.

John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and Internet Home Business Ideas and Opportunities