U.S. Economy Showing Signs of Recovery

The Dow Jones Industrial Average climbed over 100 points on Tuesday, with stocks rallying for a new record close since March 5. The S&P 500 is very close to its record closing high as well, closing at just 1.38 points below its record. Economic optimism is back, with the increase in manufacturing and home prices, a definite sign that the U.S. economy is moving towards recovery.

After the real estate scandals and slump a few years back, new data showed the single-family home prices in the United States had a steady and speedy rise since January. The durable goods orders or manufactured goods from the U.S. also experienced the same trend last month.

New York’s Miller Tabak & Co. chief economic strategist Andrew Wilkinson, said that the data and the stock performances are enough to convince investors that the economy of the United States is on the rise again and is bound to continue to do so. With the positive economic outlook, investors continue to load up on equities, which is a sign of confidence.

Understanding the stock market

Ordinary people who have never dealt in stocks and think that the stock market is only for the math, statistics and financial wizards, find it difficult to understand what the stock market movements really mean.

Yes, the U.S. economy is showing signs of recovery. However, the stock market does not equate to economy. Record highs are being hit once again and the S&P 500 and the Dow Jones Industrial Average shows remarkable improvement in the U.S. financial position, with the markets on their way up. Companies are making strong profits, which is why the stocks are high. However, the real economic indicators are the foreclosures, unpaid mortgages and unemployment.

Therefore, how could the stocks’ good performance equate to an economic recovery. The thing between these two points is “volatility.” This is the actual high and low performance of the stock market. Volatility is measured by the ViX Index. High ViX could mean about 80 points while low ViX could be around 10 or 11 points only. The ViX for the first quarter of 2013 is low.

Low volatility means the stock market is stable, in which the United States had been for more than one year. When volatility is high, the stock prices move up and down sharply. During low volatility, stock indices hit high points as investors buy stocks as the risk of losing money is also low. This is a good state to be in as this indicates that the stock market is doing very good and that the economy is improving. During times like this, the S&P 500 average is usually up by 67%, while it goes down to about 52% when the market volatility is high.

This means that investor confidence is back and that the fear of incurring heavy losses has fallen back.