Investors continued their bullishness as July unfolded continuing to bid up most major stock market indexes significantly off their lows set in mid March of 2003.

The technology laden NASDAQ Composite Index (NASDAQ) led the pack throughout July as the Dow Jones Industrial Average (DJIA) and the broad based SP-500 Index began to sputter as July progressed.

Stock market investors continued to embrace the hope for a robust economic recovery by the end of 2003. However, the economic statistics being disseminated throughout July continued to depict that the labor market was still in the doldrums (new unemployment claims weekly exceeding 400,000).

Furthermore, many public corporations continued to struggle with little pricing power and massive over-capacity in many industrial sectors.
The bond market continued to

free-fall during July (bond prices declining, interest rates rising) even though the Federal Reserve (Fed) did in fact lower short-term interest rates by 1/4% at its regularly scheduled meeting on June 25th.

Bond investors were disappointed that the Fed did not lower short-term interest rates by at least 1/2% at this meeting. Moreover, bond investors seemed spooked as the stock market ascent was based on the possibility of an economic rebound ahead, which could be inflationary and not good for bonds.

Mortgage rates near historic lows on June 25th spiked up in lock-step with 10 year treasuries further exacerbating the bond market decline.  Mortgage companies sold off treasury bonds to offset their duration risks as mortgage interest rates continued to climb.

Most major stock market indexes ended July declining  off their highs, but still up significantly for the year.

In early August most major stock market indexes continued to decline during the first week of trading. This decline was short-lived as investors continued to be bullish as August progressed biding up stock prices  higher and higher throughout the month.

Optimism was certainly the buzzword for the stock market during most of August. Risk however, seemed to disappear from the vocabulary of investors during August as many investors  focused only on their fear of being left behind on the next rally.

The bond market continued to deteriorate throughout August   gaining little ground even after the Federal Reserve (Fed) met at its regular meeting on August 12th,  leaving short-term interest rates unchanged.

Moreover, bond investors bearishness  throughout August  continued     to be   fueled   by     the