Archives For Todd Burkhalter

 

Special Edition Update
– July 3, 2012

While the first quarter of 2012 beat expectations, the second quarter poured cold water on investors’ hopes for a strong encore. Much like the last two years, the economy got off to a solid start only to falter in the spring. Despite a strong showing in the latter half of June, markets are down for the quarter,
erasing some of the gains we saw in Q1. However, the major indices are still up significantly for the year. Since January 1, 2012, the S&P has gained 8.31%, while the Dow is up 5.42%, and the Nasdaq grew by 12.66%.[i]

 

What are some of the factors that contributed to the Q2 doldrums? Most can be grouped into two major categories:

 

1.    Global economic turmoil

Concerns about the European debt crisis continued to dominate headlines this quarter, as
lawmakers struggled to contain a rapidly growing crisis that threatens the integrity of the entire Eurozone. Greece skirted the edges of a disorderly default on its debt as popular opinion rose against punishing austerity measures. Although voters elected a pro-bailout coalition government, it is still unknown whether Greece will remain in the Eurozone. The Spanish were able to secure bailout funds to recapitalize their struggling banks from a centralized bailout fund as the Eurozone gambles on a more centralized union to save itself.[ii]

 

China, the world’s second-largest economy is decelerating; its central bank is desperately trying to cushion the landing as China’s manufacturing and export sectors – major drivers of the Chinese (and global) economy – slow.[iii]

2.    Concerns about domestic growth

Investors and analysts are worried about troubling economic reports this quarter that suggest
the U.S. economy might be slowing. Stubborn unemployment, slow economic growth, and a stagnant job market continue to undermine confidence. One bright spot is that falling oil and gas prices offer consumer pocketbooks a break, and may encourage Americans to boost spending, the primary driver of economic expansion.

Taking into consideration the upcoming presidential election and expiration of the
so-called Bush Tax Cuts in January, it’s no wonder many analysts expect a period of sustained volatility in the months ahead.[iv] With this in mind, we encourage you to stick to an investment strategy that is
suitable for your own risk tolerance and personal investment objectives. Every individual has unique needs, and we always strive to match our clients to appropriate solutions to fill those needs. If you have any questions or concerns, please don’t hesitate to contact us.


Mixed Signals

June 27, 2012 — Leave a comment

Weekly Update June 25, 2012

Markets had a lackluster week as investors shrugged off two pieces of relatively positive news: that Greeks voted a pro-bailout party into office, and that the Fed took additional action to stimulate the economy. Despite a couple of strong trading sessions, markets lost ground for the week; the S&P closed down 0.58%, while the Dow lost 0.99%, and the Nasdaq gained 0.68%.

On a positive note, a few reports released last week indicate the economy could pick up steam again. April housing starts were revised upwards to 744,000, and building permits climbed from 723,000 in April to 780,000 in May, beating economists’ expectations and hopefully indicating the housing sector is improving.[i] Also noteworthy, the Conference Board’s index of leading indicators, a measure of future economic activity, rose to its highest level in four years last month, signaling that the economy should keep growing at a modest pace this year.[ii]

The biggest news last week was that the Federal Reserve will take additional measures to boost the economy by swapping another $267 billion of short term bonds for long term ones, and extending “Operation Twist” through the end of the year. The idea is to lower the interest rate of the longer bonds, which in turn is supposed to lower interest rates for borrowers on mortgages, cars, and business loans. Fed Chairman Bernanke stated that additional easing would be considered if necessary, but many investors
hoped for more from the Fed, particularly in light of its tepid economic forecast for 2012. The Fed now expects GDP growth to range from 1.9% to 2.4%, down from previous estimates of 2.4% to 2.9%, and expects unemployment to remain between 8.0% and 8.2%. Markets responded poorly to the news, highlighting concern that the Fed is running out of bullets and may not be able to respond effectively to further challenges.[iii]

Coming weeks could be hard on equity markets if the global economy continues to slow, though investors have shown signs of resilience lately, indicating that many negative factors might be priced in. There are a lot of mixed signals right now, and it is simply impossible to predict how the market will respond.
In uncertain times like these, it is especially important to stick to a comprehensive, long-term investment strategy.

On a side note, traders will be closely watching Monday’s Supreme Court ruling on President Obama’s healthcare plan; whichever way the vote goes, we will likely see some action in the healthcare sector.[iv]

 

Weekly Update – June 4, 2012

Gloomy economic data disturbed markets last week and set off alarm bells that the U.S. economy may be following Europe and Asia into a slowdown. Friday’s grim jobs report showed that the economy added just 69,000 new jobs in May, far below consensus estimates, and the unemployment rate rose to 8.2% from April’s 8.1%. Equity markets tumbled on the news, and the Dow showed its worst performance of the year, dropping 2.70%, while the S&P and Nasdaq lost 3.07% and 3.17%, respectively.[i] The Dow Jones Industrial Average has now slipped into negative territory for the first time in 2012, exactly one month after closing at a multi-year high.[ii] Meanwhile, the S&P 500 is still up 1.6% year-to-date, and the Nasdaq Composite is up 5.5%.

Earlier in the week, the first quarter GDP growth estimate was revised downward to 1.9%, from the 2.2% originally reported. Although analysts had initially expected GDP growth of at least 2% in 2012, that number is beginning to look overly optimistic. Revisions to reported estimates are worth paying attention to because they can serve as leading indicators of which direction the economy is going next.[iii] The jobs data is troubling and has potential to further stall the economic recovery. Rationalizations that a warm winter artificially shifted job growth earlier in the year appear increasingly thin. The job market is simply not growing enough to ignite a robust recovery.

Thankfully, the economy is still resilient in some areas. Inflation remains reasonably low, auto sales have continued to grow, and falling energy prices are easing the strain on consumer pocketbooks, opening the door to increased consumer spending. Even so, some analysts believe that we are falling into a familiar pattern where the economy gains traction early in the year only to falter in the second quarter. With both perspectives in mind, it would be premature to predict which way things will move next. Interestingly, in 2011, the Dow’s first close in negative territory for the year was on August 4th, but the year still ended with a 5.5% gain.[iv]

While it’s hard to dredge up the fortitude to stay invested when faced with such a slate of bad news, we haven’t yet seen the effects of lowered gas prices on consumer spending, and the U.S. is still much better off than Europe. We live in a dynamic economic system; when one asset class goes down, another comes up. We can’t predict the future, but we should always continue looking for opportunities!