As long as the economy keeps stalling, just as our political leaders promise us that a recovery is on the way, don’t expect certificate of deposit rates to pop up anytime soon.
This week’s economic false alarm stems from a drop in housing sales in December of 2009. CD investors may remember that the government’s $8,000 new homebuyer’s tax credit was set to expire at the end of November (it has since been extended by Congress), so there was a flurry of house-buying activity leading up to Nov. 30. But after that date, the housing market slid back into “sluggish” mode, another sign that the economy isn’t nearly as healthy as bank investors have been led to believe.
As long as the housing market is stagnant, and as long as unemployment remains high (the jobless number is anywhere between 10% to 17%, depending on which index you believe), don’t expect CD rates to rise soon.
To see some slivers of sunlight, we’ll need some concrete proof of an economic recovery, which just hasn’t appeared yet. Take the stock market, which lost more than 500 points in just three days last week, as measured by the Dow Jones Industrial Average. Financial stocks took a heavy hit after the federal government promised significant reforms that would likely hit banks' pocketbooks.
Could we expect more of the same? Dan Cook, senior market analyst at IG Markets, told a CNBC television audience this week that the stock market could well fall 25% by this spring. “There’s still a lot of confusion in the market. We’re looking at a pretty positive earnings season overall, but as we saw last week, it was basically ignored due to political conflicts and we’re likely to see more of that,” Cook said on the cable network. “It wouldn’t surprise me to see a range of 8,800 to 9,000 on the Dow,” he said. “There are a few individual stocks I like, but sector-by-sector, I’m definitely more bearish than what I am bullish.”