Mixed Economic Data

The stock market recovered from Wednesday’s sharp
drop. The major indices traded higher for most of the day, before a late
sell-off drove them in onto the red. The S&P 500 closed less than a
half-point form support at 1,301.

But while investors seem to be feeling at least slightly better about a
budget deal getting done before Tuesday, another negative catalyst has
reared its head — weak economic data.

Why Bonds are Rallying

Another day, and still no agreement on a 2011 budget
in Congress. Surprisingly though, the stock market is not really being
affected by the impasse. Sure, the major indices are down slightly again
today, but I think we can all imagine that it could be much worse.

Treasury bond prices have been choppy, with big $3 price swings on the
chart of the iShares Barclays 20+ Year Treasury Bond ETF (TLT) in July. But
overall, bonds are holding up well, and this tells us clearly that no one
expects the U.S. government to default on its bond payments.

Treasury Bond Yields are Falling

Treasury bond yields are falling following a sharp drop in U.S. Nonfarm
Payrolls numbers. 10-year Treasury bond yields fell below 3% for the first
time since the depths of the financial crisis.

Interestingly, the weak employment numbers and the drop in Treasury yields
coincides with the end of the Fed’s bond-buying program known as QE2.

QE2 was designed to increase the supply of cheap money and encourage
investors to enter the stock market. But with QE2 scheduled to end in just
a few weeks, investors are beginning to exit the most risky stocks.

When uncertainty rises in the stock market, investors start buying
defensive assets like dividend stocks. High-yielding dividend stocks are
especially attractive in the current environment because they are among the
only assets that can guarantee investors a return that will beat inflation
and Treasury bond yields.

To learn how you can secure your future wealth with top-paying dividend
stocks with yields as high as 7%, 8.5% and 10.8%, please click

When Good is Bad

What happens when employment numbers improve and the
unemployment rate starts to fall? Is that the point that the Fed
announces an end to its monthly QE2 Treasury purchases?

Yesterday’s blowout ADP payroll number has raised
expectations for tomorrow’s Nonfarm Payroll number. The consensus
expectation was for a gain in the 130K-140K neighborhood. But now, in
light of the
ADP report, expectations have risen to the 150K-160K level.

What the End of the Bond Bull Market Means for Investors

It’s been a while since I read Bill Gross’ monthly
Investment Outlook.

If you don’t recall Bill Gross is one of the most
influential fund managers in the world. As the founder and CEO of PIMCO,
he oversees around $1 trillion in assets. Ad he personally runs the PIMCO
Total Return Fund, with assets above $500 billion.

Gross is a bond guy. And he’s done quite well over the
years, posting consistent annual returns in the 8%-10% range.