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.