The U.S. stock market and exchange traded funds (ETFs) extended their rally this morning, giving the market its best monthly gain since 1987.  Treasury Secretary Timothy Geithner’s speech to Congress and updated GDP numbers could be significant factors in what happens today.

The markets were able to extend yesterday’s rally, fueled by better-than-expected new home sales and growth in durable goods as a result of better-than-estimated earnings by electronics giant Best Buy (BBY), frozen dinner maker ConAgra Foods (CAG) and prospects for lower labor costs at General Motors (GM).  This helped the SPDR S&P Retail (XRT), jump about 4% in intraday trading.

These rallies are a great indicator that an economic recovery is in the near hindsight. However, we are not in the clear. In fact, the U.S. economy was weaker at the end of 2008 than most expected, projected and believed. In the fourth quarter of 2008, GDP declined 6.3%, after tax corporate profits declined 28.4% and federal government spending increased 7% in an attempt to ease the pain of a recession and bailout Wall Street.

To add fuel to the GDP fire, unemployment rates continue to increase with no quick solution. Initial claims for state jobless benefits advanced 8,000 to 652,000 in the week ended March 21. In all, the recession has casued 4.4 million jobs to be shed, most of them being cut in the last three months alone, states Jeff Barter and Brian Blackstone of The Wall Street Journal. To put in perspective, the unemployment rate has ballooned to 8.1%, a 25 year high.

On a separate note, Treasury Secretary Timothy Geithner said that the financial systems need a broad overhaul in the way that they are regulated in order to instill confidence in a crippled system. Geithner proposes the following:

  • Hedge funds, private-equity firms and derivatives markets would be put under federal supervision for the first time by the Securities and Exchange Commission (SEC)
  • A new systematic risk regulator would have powers to force companies to boost their capital or curtail borrowing, and authorities have the ability to seize them if they are spiraling out of control, states Rebecca Christie and Robert Schmidt of Bloomberg
  • New standards for executive compensation across the board
  • Derivatives would be required to be traded through clearinghouses and new oversight would be added to money-market funds to prevent the risk of a run of these funds
  • Require banks to stash more reserves in boom times to build a cushion for economic woes
  • New regulations to curb tax evasion, tax havens and money laundering

Also, the Securities and Exchange Commission (SEC) is going to bolster the regulation of money market funds and the protection of investors who entrust their funds to broker-dealers and advisors, Reuters reports. SEC Chairman Mary Schapiro is considering ways to improve credit quality, maturity and liquidity standards applicable to the funds.

Lastly, there is more good news from the housing industry. For those of you that are creditworthy enough to obtain a 30-year fixed mortgage loan, they are at record levels. They fell to 4.85% on a government plan to increase purchases of mortgage-backed bonds and buy as much as $300 billion of Treasuries. These low borrowing rates have spurred an increase in mortgage applications, which is a move in the right direction for the tainted housing industry.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.