This week, the major indices suffered a hit of about 2% on Tuesday. On Friday, they attempted to regain some lost ground, but ended with a weekly loss of about .7%.  The unemployment rate rose more than expected to 9.7%, but job cuts were down to 216,000 last month compared to July’s 276,000. The mixed report reflects that while there is continued improvement, we are not out of the woods yet.

In recent months, there has been significant movement of money into bonds.  Part of this increase in demand owes to the general belief that the Federal Reserve will successfully maintain inflation at currently low levels.  However, we find this idea to be misguided.  We expect inflation to return to more “normal” levels in the next few years.  Similarly, interest rates will increase, and those who have purchased bonds will be stuck with their bonds, unable to take advantage of new, higher rates.

Highlights next week include consumer confidence and, as always, weekly claims.