It was a day when the markets didn’t do much, but there was a whole lot of talk about what MIGHT happen in the weeks and months ahead.

The Dow Jones industrials were up nearly 4 points, and the Nasdaq Composite and Standard & Poor’s 500 Index were nearly unchanged. A big change from last week's trading frenzy. Volume was low, too.

The market's strength was in utilities, techs, real estate investment trusts and airlines. The laggards were oil, oil services, natural gas and metals. Sears Roebuck and Dillard's, which had huge jumps on Friday, fell back about 5% today.

Bond yields, however, went up, which pushed bond prices lower. The yield on the 10-year Treasury note was about 4.22% today, up from 4.17% on Friday and 3.92% on Oct. 25. Yields have moved faster on the 5-year Treasury note, which was at 3.52% today, up from 3.49% Friday and 3.24% on Oct. 25.

Watch rates. They will be affecting mortgage rates, auto loans rates and consumer loan rates. No one sees rates falling back again. For one thing, the Federal Reserve’s Open Market Committee will almost surely raise rates at its meeting on Wednesday, and the betting is solid for another rate increase in December. The Fed moved its federal funds rate from 1% in to 1.75% as of Sept. 21. Most Fed watchers see the rate going to 2% on Wednesday.

Wall Street’s conventional wisdom is that higher rates are a good thing: they’re a signal that the economy is going to strengthen in the coming months. Joseph Quinlan, chief market strategist at Banc of America Securities, sees a strong stock market until mid-2005. Then the downside risks come into play, he said on CNBC’s “Closing Bell.”

* Oil prices have to move lower; $40 or so would be great, Quinlan said.
* The Iraq situation needs resolution.
* There has to be more signs of global economic growth. While Asia looks strong, Europe does not.

The other chatter today was how the Bush Administration will try to change the Social Security system. The system is facing a demographic time bomb: in perhaps 20 years, it will pay out more than it takes in at current levels.

President Bush has long promoted some sort of privatization that would let workers control at least some of their money. Assuming workers invested for the long term, they should get at least market returns from these monies.

But the risk, as Peter Orszac of the Brookings Institution pointed out, if the investments don't pan out, what happens in the new accounts perform poorly.

What's not clear is what the Bush plan on Social Security might actually look like. If Sen. John Sununu, R-N.H., is any indication, it would be relatively modest. Sununu has been promoting a plan with three investment choices: an index fund instocks, a bond fund and possibly a mixture of the two. That would be similar to the federal thrift plan that government employees can contribute to, he said on CNBC's "Street Signs."

But Barbara Kennelly of the National Committee to Preserve Social Security and Medicare, argued Social Security is a safety net program, not a retirement program. Like Sen. Sununu, she predicted a difficult, intense fight.

Article © Anywhere Communications All Rights Reserved