Archives For Todd Burkhalter

Digging Deeper

July 9, 2012 — Leave a comment

Weekly Update – July 9, 2012

The major indices closed mixed last Friday as a week of slow trading was capped by
a market-wide selloff on Friday. The retreat was driven by a mediocre June jobs report and fears about a jobless recovery. The S&P closed down only 0.55%, the Dow gained 1.35%, and the Nasdaq rose 0.08%.[i]

 

The U.S. suffered its third month of sub-100,000 jobs growth in June, adding just
80,000 new jobs. The economy needs an average growth of at least 125,000 new jobs per month in order to be considered healthy.[ii] However, let’s take a moment to dig a little deeper and consider what lies
behind the jobs numbers each month. One of the complications of calculating jobs growth is seasonality, which economists have to estimate based on their knowledge of annual trends. Currently, we’re in one of the slow periods of the year, when factories slow production and retailers see fewer sales. Economists
only expected to see 90,000 new jobs; although we missed that number, the situation is not as grim as it appears.

 

A more positive indicator that we saw in the jobs report is that the number of temporary workers grew by 25,000, accounting for nearly one-third of the new jobs last month. [iii] This is good news because the hiring of temporary workers historically presages that of permanent employees. Hiring full-time employees is a significant investment that businesses may be reluctant to take on in a shaky economy. Temporary employees can fill the gap without a significant investment. As employers become more confident of their own needs and the economy, they often convert temporary employees into permanent staff.[iv]

Two more positive indicators could mean that the jobs market is emerging from a
spring slump. The number of Americans applying for jobless benefits fell to a three-month low in June, and the number of layoffs announced in June fell to a 13-month low – about 40% less than May’s number of layoffs. Both of these reports indicate that employers are becoming motivated to keep existing
employees and reduce layoffs. That plus the increase in temp worker hiring could mean there’s hope for a rosier employment picture later this year.[v]

 

While the job market and economy are far from healthy and we are unlikely to see the
robust employment numbers of earlier this year, we can hope to see moderate employment growth ahead. Falling gasoline prices may increase consumer spending and businesses will see their prospects improve, improving the overall employment outlook. Keep in mind while reading the media’s spin on economic reports that they often tell a small part of the picture. Headlines tend to focus on the worst-case scenario without taking the time to explain the data that can be understood by digging deeper.

 

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]