Weekly Commentary
May 10, 2010
The Markets
Five
little "PIIGS" went for a boat ride. The weather turned very stormy
and "G" got tossed overboard without a life jacket. Shortly
thereafter, "P" and "S" found themselves overboard and
drowning in the water, too. Unable to mount an effective rescue, the other
shipmates radioed for help. Fortunately, "EU" and "IMF"
were available with a bigger boat and more rescue equipment. As the storm
continued to rage, the "PIIGS" desperately waited for "EU"
and "IMF" to arrive, hoping they would have the tools necessary to
save them.
The above
metaphorically describes what is happening in Europe. The "PIIGS" are
Portugal, Italy, Ireland, Greece, and Spain. Water is code for government debt
and largesse. "EU" is the European Union and "IMF" is the
International Monetary Fund. The big question is, will the "EU" and
the "IMF's" boat and tools be enough to complete the rescue, or will
they be overwhelmed by the storm, too?
With the
events of last week, world financial markets declared loud and clear that
government debt levels in certain countries are unsustainable and have to be
dealt with right now. Jolted into action by the gathering storm, the 16 euro
nations and the IMF announced late Sunday evening a loan package worth nearly
$1 trillion to help stem the budding crisis, according to Bloomberg. This huge
show of force may be enough to convince investors that the euro nations are
serious about saving the weaker members, i.e., the "PIIGS."
The good news is that
the U.S. is not the epicenter of this latest problem. That, coupled with an
improving economy, may help the U.S. avoid the brunt of the pain.
|
Data as of 5/7/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
| |
Standard & Poor's 500
(Domestic Stocks)
|
-6.4%
|
-0.4%
|
19.6%
|
-9.7%
|
-1.2%
|
-2.5%
| |
DJ Global ex US (Foreign Stocks)
|
-9.6
|
-8.7
|
19.1
|
-11.6
|
1.9
|
0.4
| |
10-year Treasury Note (Yield
Only)
|
3.4
|
N/A
|
3.3
|
4.6
|
4.3
|
6.6
| |
Gold (per ounce)
|
2.0
|
8.9
|
31.8
|
20.7
|
23.1
|
15.8
| |
DJ-UBS Commodity Index
|
-4.5
|
-7.6
|
7.8
|
-9.4
|
-3.3
|
2.5
| |
DJ Equity All REIT TR Index
|
-6.6
|
10.3
|
62.7
|
-10.2
|
2.5
|
10.8
|
Notes: S&P
500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested
dividends (gold does not pay a dividend) and the three-, five-, and 10-year
returns are annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are annualized; and the
10-year Treasury Note is simply the yield at the close of the day on each of
the historical time periods. Sources: Yahoo!
Finance, Barron's, djindexes.com, London Bullion Market Association. Past performance is no guarantee of
future results. Indices are unmanaged
and cannot be invested into directly.
N/A means not applicable or not available. THE EVENTS OF LAST WEEK
REMINDED INVESTORS that
a significant drop in the markets can happen at any time. However, as described
below, the U.S. has some positive momentum in place that may help it weather a
new storm should one arise. -
First quarter corporate earnings
were strong as 76% of the S&P 500 companies beat the average analyst profit
forecast, according to Bloomberg. Strong earnings growth may provide support
for stock prices.
-
U.S. consumer spending hit an
all-time high in March, finally surpassing the previous peak set in November
2007, according to the Commerce Department. Consumer spending accounts for 70%
of gross domestic product so this could bode well for economic growth,
according to Forbes.
-
Job growth is finally occurring as
the Department of Labor said nonfarm payroll employment grew by 290,000 in
April, which was well above forecast. Earlier months were revised upward, too.
Employment growth is a key driver of economic growth.
-
Consumer borrowing posted an
unexpected rise in March, which was only the second gain in 14 months,
according to Associated Press. The rise may suggest consumers are feeling more
confident and that could help the economy.
Today,
the economy is on its way up from a devastating decline. With the layoffs in
the past couple years, significant excess in the economy has been wrung out,
which may set the stage for sustainable growth. As described above, many key
economic indicators are pointing toward a strengthening economy. And, while
it's true that the economy and the stock market can fall out of sync for
periods of time, the fact that our economy seems to be heading in the right
direction may help provide some underlying support for the stock market in the
short term. Weekly Focus - Think
About It "Worry
gives a small thing a big shadow." --
Swedish Proverb
|
