Archives For Europe

 

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.


 

Weekly Update – April, 16 2012

It was a rough one for the stock market last week as major indices closed out their worst session of 2012 on the backof disappointing economic growth in China and renewed fears about debt-ridden
Europe. The S&P fell 2% for the week, while the Dow lost 1.61%, and the Nasdaq closed down 2.25%.

China, the world’s second-largest economy, reported first-quarter growth figures of 8.1%, the weakest rate in nearly three years, and below expectations of 8.3%. Stocks fell sharply on the news, stoking
fears that a weakened Chinese economy could have global implications.[i] Concerns surrounding
Spain’s debt offering next week renewed fears about the European debt crisis, battering bank stocks and dragging down the euro against the dollar.[ii]

On the other hand, domestic indicators continue to provide a positive contrast to global worries. The most recent Beige Book report released by the Federal Reserve shows that the U.S. economy is
improving at a “modest to moderate” pace as solid auto sales, warm weather, and growth in high-tech manufacturing outweighed the effect of high gasoline prices.[iii]

Sales by U.S. wholesalers rose 1.2% in February, and they restocked their inventories at a faster rate in February than January, suggesting they expect a strong spring. Consumer confidence likewise grew in February by the most in seven months. This is especially good news since consumer spending drives nearly 70% of domestic economic activity; if consumers keep spending, the economy will continue to improve.[iv]

 

Domestically, the U.S. economy really seems to be chugging along, and indicators continue to support a broad recovery. Nevertheless, concerns about the fragile global economy will likely lead to continued
volatility in equity markets. The declines experienced over the last two weeks are not difficult to comprehend in light of the outstanding first quarter performance we experienced. In the weeks ahead, analysts will be examining quarterly earnings reports to determine whether the pullback has been exhausted, or if we should expect continued profit taking.

As always, when short-term declines test your resolve, it is critically important to remain focused on your long term objectives and trust that the portfolio strategy you have in place can weather a few squalls.


We Have to Mention It

January 18, 2012 — Leave a comment

Weekly Update – January 16, 2012

 

We know you’re probably tired of hearing about Europe’s debt crisis, and frankly, we don’t blame you. At risk of sounding insensitive to the struggles of our European neighbors, we’re tired of it too. While there are benefits to globalization, there are also drawbacks as evidenced by the unprecedented level of negative influence Europe’s financial issues have had on us in recent years.

 

As we look at last week’s activity, we can see the affect Europe is having yet again. While all three indexes ended the week in positive territory, recent gains came at lower-than-normal trading volumes as wary investors dipped their toes in the water, but were afraid to dive in.[i] Stocks finished in the red Friday on expectations that nine Eurozone nations would be downgraded by S&P (and they were shortly after trading hours), including AAA-rated France and Austria. Italy was lowered two notches to BBB+, dangerously close to junk bond levels that could make it even more difficult for the government to raise money.[ii] Here’s the report card[iii]:

 

France – AAA to AA+

 
Austria – AAA to AA+

 
Slovenia – AA- to A+

 
Slovakia – A+ to A

 
Spain – AA- to A

 
Malta – A to A-

 
Italy – A to BBB+

 
Cyprus – BBB to BB+

 
Portugal – BBB- to BB

 

While investors have been expecting this downgrade since S&P issued a warning last month, the news is still a harsh reminder that Europe is not out of the woods. It is not yet clear how hard the downgrades will hit markets, but it is likely that we will continue to feel Europe’s influence until this situation is resolved. On the bright side, leaders from Germany, Italy, and France have been sounding upbeat about proposed solutions.[iv] We hope their optimism will promptly translate into concrete actions.

 

When any set of circumstances has the potential to affect your financial situation, we are committed to monitoring it closely and to keeping you informed. Please rest assured that the European debt crisis is no exception.

 

ECONOMIC CALENDAR:
Monday –

U.S. Holiday: Martin Luther King Jr. Day
Tuesday –

Empire State Manufacturing Survey

 
Wednesday – Producer Price Index, Industrial Production, Treasury International Capital, Industrial Production, Housing Market Index

 
Thursday –Consumer Price Index, Housing Starts, Jobless Claims, Philadelphia Fed Survey

 
Friday – Existing Home Sales