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Will the Dow Jones Stay Above 13,000?

Mar 12 2012

Hovering in the 12,800 to the 13,000 range, the Dow Jones is often a barometer of the economy. As the United States economy unfolds in 2012, it will have to overcome several hurdles before the Dow Jones can possibly stay above 13,000 for an extended period of time. Consumer data, unemployment rates, the housing and the effects of the end of the Iraq War are all expected to have a strong influence over the profits reaped from the Dow Jones this year.

Job Growth
After many ups and downs, the unemployment rate seems to have stabilized.   Private and public sector jobs outside of the farm sector payrolls were expected to grow by an increase of 215,000 in February according to top economists. In actuality, the labor market gained 216,000 jobs. This comes as good news to investors. A decreasing unemployment rate and job growth can help fuel the economy’s growth.  Recent job growth may not be enough. In December 2011, there were 153,887,000 people in the labor market and 13,097,000 did not hold a job. An unemployment rate that is still at 8.3% is still far higher than the 4.5% that economists say should be the target. Although any growth is better than no growth, if the employed portion of the labor force does not increase enough it can spell bad news for the United States as a whole.

The Housing Market
According to the National Association of Home Builders, the United States housing market has expanded by 29 metros in February of 2012. This measurable improvement is based on data from metropolitan areas. Looking at employment, issued housing permits and prices, the index identifies areas that have shown improvement over at least six months. Thirty-six states are now listed as having at least one metropolitan area on the list. Far from being signs of recovery, it does show that at least things are not getting worse. The housing market is wracked by a tight lending environment. As economic conditions stabilize, lending is becoming easier—but is still nowhere near its pre-2000 levels. What the numbers do show is that more consumers are feeling confident enough in the market to make a home purchase. As the country progresses through the recovery, the number of home purchases should grow. Looking at population numbers, there will soon be a lack of homes for new home buyers. During the recession, new families and young adults put off home buying because of the cost. As these youth age, new houses will be required. It may not mean an instant fix, but it will happen.

Consumer Confidence Data
The Conference Board Consumer Confidence Index showed a decrease in the month of January. By February, these numbers changed and the Index rose to 70.8 from the previous month’s 61.5. At the same time, the Present Situation Index went up to 45.0 and the Expectations Index increased to 88.0. Overall, consumers expressed more optimism in job growth, business conditions and incomes than they had just a month prior. The psychological benefit from these expectations can help to fuel the economy. Optimistic consumers are more likely to make investments and buy houses. This action can help to start an upward spiral of improvements that ultimately can cause the Dow Jones to stay at its currently high levels. As long as it stays on its current path, the Index can positively impact the economy.

Like many economic indicators in the United States, a continued path of improvement in the Index is not guaranteed. As we look into the future, the United States will have to beat many obstacles and continue to grow for the Dow Jones to have a consistent upward trend.

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