Weekly Update – May 28, 2012

Markets started off last week with a bang and managed to hold their gains long enough to snap a three week losing streak. The S&P gained 1.74%, the Dow rose 0.69%, and the Nasdaq notched up 2.11%. Most of the action was driven by bargain-hunting traders striving to snap up deals in advance of
potential rallies. Perhaps most impressive about the week’s performance is that it came in the face of continued gloom from Europe.^[i] The few economic reports released last week were generally lukewarm, with unemployment flat, and home sales slightly up.^[ii]

Worries about Europe weren’t helped by the announcement by a former Greek prime minister
announcing that Greece may be considering exiting the Euro. However, European leaders are due to meet next week to discuss plans for promoting growth and preventing the recession that grips half the region from dragging down the global economy. Results of the meeting could mean a larger role for the
European Central Bank or the use of controversial Eurobonds (guaranteed by the Eurozone as a whole) to bail out ailing economies.

It’ll be difficult to get a clear picture of what the next few months will bring in Europe until Greek elections on June 17 – which will define how the new government will abide (or not) by austerity agreements. As a result, the slew of U.S. economic indicators being released next week will probably feature heavily in trading. If headlines reveal that the economy is still chugging along, it should divert attention
away from Europe and provide investors with incentive to jump back into equities. On the other hand, bad economic news could indicate that the Eurozone contagion is spreading and cause further declines. As always, only time will tell the story. On a side note, one silver lining in the Europe situation is
the strengthening of the U.S. dollar, which could cause more money to be poured into dollar-denominated assets as investors flee a threatened euro.^[iii]

With the markets poised to jump whichever way the headlines blow, we strongly believe it is best for
long-term investors to stick to their strategy while maintaining enough flexibility to adjust course if the situation calls for it. We pledge to keep monitoring world events as they unfold, and to keep you informed.