Investors Jump Back Into Market but Are Uncertain of Steps Ahead

Schwab sees areas of improvement and concern in economy

The market has regained its footing after a shaky February, leaving many investors relieved but looking for a strategy forward. The flurry of recent economic data has also buoyed investors but also confused them.

In a commentary, Schwab Market Perspective: Left Behind?, posted on Schwab.com on March 12, Liz Ann Sonders, senior VP and chief investment strategist at Charles Schwab Corp., and Brad Sorensen, director of market and sector analysis at Charles Schwab, sorted through the trends and offered a view of the economy.

They said that recent economic data pointed to recovery, in particular the Institute for Supply Management index, which was at 53.5 in February, its best level since October 2007. They also said nonfarm business productivity remained robust, which is likely to lead to more hiring to meet demand.

But a major cause for concern, Sonders and Sorensen write in their commentary, is the wide gap of optimism between small businesses and larger ones. Since small businesses create most new jobs, their muted confidence can dampen any potential recovery. Also, the ballooning federal deficit and depleted state funds offer some pause, but if a recovery ensues tax revenues will ease concerns.

Another positive area to observe, they say, are low interest rates and low inflation, which means the Federal Reserve has little pressure to increase interest rates. But with the Fed ending its support for mortgage-backed securities by the end of March 2010, the housing market may be headed for a jolt. The Fed, though, will unlikely allow this key sector to deteriorate without some further action.

"Key to watch during the next several Fed meetings will be language changes, particularly to the 'extended period' phrase that has characterized the Fed's plans for how long rates will remain at current levels," Sonders and Sorensen say.

To read former diplomat and author James Glassman's recent take on growth in the economy , please click here.

To view the statement expected from the Federal Reserve's Open Market Committee on March 16, please click here.

Reprints Discuss this story
This is where the comments go.