Market commentary

Europe finally delivered on a bailout plan and stronger than expected U.S. GDP growth sent U.S. stocks soaring Thursday, while creating a rout in the bond market. Adding to the pressure on bonds was a disastrous 7 year note auction.

This morning it was reported that personal income rose less than expected in September, rising just 0.1% at the headline level. Real income, however, fell for the third month in a row at a rate of -0.05%. Despite weak income growth, spending chugged along at a 0.6% growth rate, an increase from 0.2% in August. Given the weak employment picture this is not a sustainable trend for spending to outpace income growth at such a large spread. The result has been a drop in the savings rate to 3.6%, the lowest level since December 2007. Unless real incomes begin to rise it is hard to imagine that consumption will continue at its current pace.

Next Tuesday, November 1, 2011, the Fed will begin another two day meeting amid speculation the Fed will announce an outright purchase of mortgage backed securities, another round of quantitative easing or some other form of market manipulation. Stay tuned.

For today stocks are taking a breather from Thursday’s strong rally and we see a slight rebound in the U.S. Treasury market.