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