Optimism ruled the markets last week -- optimism about employment, optimism about housing, and optimism about inflation. Mortgage rates edged lower overall.
Despite the positive sentiment from Wall Street, consumer confidence in the economy reached a 28-year low.
This is a normal divergence because investors live in the "future" of markets while Americans live in the "right now" of life where food prices are high, gas prices are still rising, and job prospects are somewhat weak.
Consumer confidence surveys have to be taken at face value, though. Yes, Americans are nervous about the economy and their household budgets, but that rarely deters them from spending.
In April, for example, Retail Sales (excluding autos) were up 0.5 percent -- more than double analyst expectations. And this was before economic stimulus checks showed up in tax-filers' mailboxes.
Perhaps this is one more reason why markets were so pleased last week.
This week, there isn't much economic information to sway markets. On Tuesday, we'll see the Producer Price Index which is like a Cost of Living for Business measurement and on Friday we'll see the Existing Home Sales report.
Strength in either will be good for the economy and should benefit both stocks and bonds, and should lower mortgage rates. Weakness will have the opposite impact.
(Image courtesy: The Wall Street Journal Online)
