Summer Solstice Heats Things Up!

Among other items of interest, such as the Commerce Department's release of data on housing starts and the Labor Department's disclosure of data on weekly jobless claims, this Thursday will be the longest day of the year as the summer solstice marks the official start of summer. Right on target, the temperatures here in the east are set to reach into the 90's, providing a scorching beginning to this festive season. With the core inflation reports of last week being somewhat benign, after stripping out the highly volatile food and energy prices, the market ended the week with a bang and could be poised, like the mercury, to creep up further this week.

Overall, the most recent economic reports seem to be verifying the renewed strength of the economy after the mid cycle slowdown, which we've discussed previously. With bond yields surpassing the 5.25% mark briefly last week, bond investors have realized the next move by the Fed on interest rates may be an increase, although my personal belief is that until the depth of the housing slump and subprime mortgage debacle is determined, the Fed will be on hold. Once again, the yield curve is sloping in a positive direction, which bodes well for economic strengh. Perhaps the inversion of the yield curve for part of 2006 was merely indicating the mid cycle slowdown that occurred, and not predicting recession!

So as you mark the summer solstice with whatever ritual suits your tastes, remember the economy and the markets have some upside potential left, even if we do begin to see some increased volatility going forward. I can't say this enough, but it bears repeating, that the markets are not predictable on any given day, and rarely go up without retreating. This ebb and flow of stock prices is what keeps things interesting and allows the supply and demand of stocks to be reset as the psychological drama among investors unfolds. Happy First Day of Summer 2007!

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 http://www.johnkaighn.com and http://www.jerseybenefits.com