The biggest blackout in U.S. history last week didn't stop Wall Street from keeping to business as usual. And despite concern amongst many wage earners about job prospects and security, stock markets worldwide are on the rebound, shrugging off signs that the nascent economic recovery may not be fully-fledged.
This week, the Dow Jones industrial average hit its highest level in 14 months, discounting the power outage, as well as the recent rise in interest rates and the frequent geopolitical upheavals of late.
Taking their cue in part from the buoyant U.S. equities market, bourses in Europe as well as Tokyo having been gaining ground in recent weeks too.
Japan's stock market has been particularly robust over the past few months, as the economy begun to show some signs of recovery after over a decade of little or no growth. Certainly, investors' appetite for equities has been picking up, particularly among foreign investors, who now regard Japan as a bargain, with prices having reached the bottom.
As for the European bourses, they enjoyed a nine-day rally of consecutive gains until earlier this week, as investors expected economic prospects to brighten up moving forward.
So is the worst over for the global economy?
One thing is certain, that both the Europeans and the Japanese remain highly dependent on a U.S.-led recovery, and without a strong U.S. economy, global prospects would suffer. Meanwhile, bulls, including those in the Bush administration, would argue that a recovery is well underway in the United States, with the only weak point being the job market. The White House has repeatedly said that the administration's tax cuts, coupled with the Federal Reserve's determination to keep interest rates at their lowest level in over 40 years, has succeeded not only in keeping the economy from plunging, but has actually led to a gradual recovery over the past two years.
Indeed, housing starts reached a new record level in July, as the annual rate of homes being built across the United States reached an annualized rate of 1.872 million units, with starts up 12.4 percent on a year-on-year basis. Certainly, the continued strength in the housing market has been a key factor in supporting the U.S. economy, and has offset the plunge in financial markets, homeowners saw their property prices compensate for their losses in the stock market.
Yet some analysts are concerned that such strong demand won't be sustainable, especially as mortgage rates are beginning to climb back up again in anticipation of a recovery in the economy. Many argue that the current rush to buy houses would only last for a limited time, as people try to get a low mortgage rate when they can.
Others, however, are less bearish about the housing market's future.
"Eventually this rush to beat higher interest rates will diminish and housing activity will level off at a somewhat lower, but still strong, level of activity," said Brian Wesbury, chief economist of Griffin, Kubik, Stephens, and Thompson.
That may well be, but it doesn't change the fact that for many, the economy is still sluggish, given the continued weakness in the jobs market as companies often try to squeeze profits by cutting down on personnel costs in a competitive environment. Not only is the unemployment rate above 6 percent, there is also concern that joblessness could get worse before it gets better.
Still, some economists are arguing once again that there is a so-called natural state of unemployment or a non-accelerating inflation rate of unemployment, called NAIRU. In fact, the Congressional Budget Office estimates that the optimum rate of unemployment is actually around 5.2 percent, and the research team at UBS argues that such a rate of joblessness is necessary to keep the economy revving without risking inflation.
The problem is, for those looking for jobs, there's small comfort to know that having persistent unemployment is an inevitable tradeoff for keeping the overall economy from overheating. And such negative concerns could spill into consumer spending, and into the stock market.
As a result, global bourses will still not be able to afford to keep their eyes off the U.S. markets.
