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Many investors are wary of stock market rallies right now. There is concern that unless the Dow can sustain itself above 10,000, signs of an imminent recovery aren’t good. While the truth is that it will probably be some time before a lot of the volatility smooths out and economic recovery really picks up speed, investors are nonetheless interested in Dow 10,000. And, after being below that psychologically important level for some time, it looks the bulls are making a run at it today.

Indeed, yesterday’s economic policy statement from the Fed is inspiring some hope as investors see that the Fed is willing to continue propping up Wall Street banks for a little longer. Additionally, economic data is encouraging. Jobs claims data shows that the employment picture is improving, albeit at a rather slow pace. Retail sales data from October showed an increase that was bigger than expected, and there is optimism for the holiday shopping season. And, productivity is on the rise, reports BusinessWeek:

U.S. nonfarm productivity growth rose at a torrid 9.5% clip in the third quarter, the fastest pace in six years and much higher than economists had expected. It follows a revised 6.9% rate of growth in the second quarter (from 6.6%).

“Obviously cost cutting and layoffs through the recession have kept productivity rising at very robust rates,” said Action Economics analysts in a website posting Thursday.

All of this news has the stock market in an upbeat mood, driving toward 10,000, and hoping to set the stage to break through that barrier today or tomorrow. It is important to be wary, however, since economic data isn’t that great, and economic recovery is supposed to be a slow process.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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One of the reasons that so many of us have trouble with investing is that, psychologically, we make mistakes and let our fears overcome our common sense. And this is a very real reason that having the guts to invest in this market is very difficult. Flexo at Consumerism Commentary has a whole list of psychological factors that can lead you to make poor investing decisions. One of these effects is the “recency effect.”

This effect is when you let what you remember last about investing influence your future. Consider yesterday’s down market (it’s slightly higher today). Or the market in general, or the financial news. Here is what Flexo says about the damage that can be done when you cave to the recency effect:

In the midst of a recession, it seems like the stock market keeps getting lower. All we see is bad news like financial scandals and corruption. We forget that over the long term, the stock market has been the best way to grow your money. So we abandon the stock market and miss out on those gains when the economy rebounds.

If you opened your retirement account statement and saw a huge drop, chances are that had a big impact on you. And for the next three to six months (depending on how often you receive a statement), that’s all you think about. And the recency effect impacts you and you start thinking that you need to fix that last thing that just happened with your retirement account. Or you think that since your retirement was down this last time, it will be down forever.

It sounds irrational as you read it, but in the heat of the moment, when you have to make a decision, the recency effect becomes very real, and you might be influenced by it. Instead, it is a good idea to do what you can to avoid making decisions quickly, and carefully look over your situation and make an investing plan that is likely to last long term.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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Today’s housing market data has done little to help the stock market. After yesterday’s rally on optimism due to earnings, things are cooling off as investors look at the housing situation. It is clear that confidence in an already shaky housing market is deteriorating as the end of the first time home buyer tax credit approaches. This news is putting a damper on a rally based on economic recovery. At least, the damper is on the stock market. The U.S. dollar, on the other hand, is getting a bit of a bounce.

U.S. dollar gains as a safe haven investment

Many dollar bulls have been bemoaning dollar weakness recently. With investors in a riskier mood, not to mention focusing on U.S. debt (which undermines the dollar on a fundamental level), the U.S. dollar has fallen out of favor recently. However, with concerns about the economy back in focus, the dollar is being preferred as a safe haven currency. As an investment backed by the largest economy in the world, and by the most stable taxpayer base in the world, it takes little imagination to see why the dollar has safe haven status right now.

Could the U.S. dollar really crash?

Another issue with the recent weakness is that there might be a dollar crash. This, however, is somewhat unlikely. The dollar has mainly been returning to pre-financial crisis levels. It just seems like a dramatic drop because of how much the greenback gained during the recession. The return to normalcy feels more dire than the situation is. Besides, The Forex Blog points out, it’s not like any other currency is in a much better position:

While forex investors in recent years have enjoyed ganging up on the Dollar, the fact remains the fundamentals for the other major currencies remain just as weak. For example, a model of purchasing power parity developed by “the Organization for Economic Cooperation and Development finds the dollar is worth roughly 0.85 euro, compared with its market valuation of 0.67 euro, suggesting that the euro is 21% overvalued.”

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.