Archives For Todd Burkhalter

 

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!


A Hazy View

May 29, 2012 — Leave a comment

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.


Weekly Update – May 14, 2012

Concerns about Europe and the global economy set a negative tone last week and markets closed out at a loss. The S&P lost 1.15%, while the Dow lost 1.67%, and the Nasdaq 0.76%. On apositive note, the U.S. economy continues to slowly improve as evidenced by asurprisingly positive consumer sentiment report, showing that American consumers are still upbeat about the economy. Jobless claims held steady for
the week and some analysts speculate that the unusually high unemploymentclaims seen in the first weeks of April were the result of seasonal adjustment and not actual job losses. Earnings season is winding down, but a few key players such as Disney, Macy’s, and Kohl’s posted better-than-expected earnings.[i](These opinions are not to be construed as investment advice)

Eurozone troubles were at the core of investor concerns last week as realization dawned that in order to keep the European Union (EU) together, the European Central Bank (ECB) will have to pump trillions of euros into the monetary system. Germany is likely to face high inflation rates for the next few years as it struggles to help the economies of its partner countries. Still haunted by the hyperinflation of the
early 1920s, German voters may balk at the spending required to keep the euro afloat, pressuring politicians to balance needs with voter concerns – something that is never easy to do.

The recent European elections may also make it difficult for Europe to make headway against its debt
troubles. Hollande, the new Socialist president in France, has promised voters not to continue with strict austerity measures. While this is appealing to the masses, it could lead to additional downgrades on French debt, thus making problems worse. In Greece, the majority parties won less than 35% of the votes,
giving significant headway to fringe parties. This development, combined with popular sentiment so opposed to necessary austerity measures, has made it increasingly likely that Greece will leave the Eurozone. While the EU can probably survive the exit of Greece, in order to preserve its integrity, it will be critical for the ECB to prevent the default (and exit) of Spain or any of the larger economies. The ECB is the only entity in Europe with the power to save Spain from default – however, the only way to do so is by printing a ton of money, and risking inflation and currency devaluation.[ii]

What all this means for U.S. investors is this: The crisis in Europe is far from over, and we should not be surprised by volatility and uncertainty right now. If European politicians, nervous about losing elections, refuse to make hard budget decisions, Europe’s crisis may deepen and threaten the stability of the euro. It is impossible to know what the future holds for Europe, but with every downside usually comes an
upside somewhere else. We work hard to identify those upsides, and to adjust our clients’ investment strategies where necessary. Thank you for the trust you’ve placed in us.