Financial Market Update
StrategicPoint of View®
February 8, 2010
Welcome to the StrategicPoint of View -- a market and economic overview of what occurred last week, what's up for this week, and our commentary on the economy and current market activity in general for “Making Money” listeners.
LAST WEEK
The jobs number drove the markets on Friday, inserting a little sanity into the equation. While the economy continued to bleed jobs (-20,000), the unemployment rate dipped surprisingly to 9.7% from 10% last month. Temp hiring increased modestly along with hours worked, creating a little burst of good news. The rest of the week’s news was mixed, but leaning towards the positive side. Personal incomes and spending rose, manufacturing activity and new factory orders jumped but construction spending tanked.
S&P 500: 1066 (down 0.7% for the week and down 4.39% on the year)
Dow: 10,012 (down 0.6% for the week and down 3.99% on the year)
NASDAQ: 2141 (down 0.3% for the week and down 5.64% on the year)
10-year: 3.54% (from 3.61% last week)
Crude Oil (February): $71.19 (from $72.89 last week)
Gold (February): $1,052 (from $1,083 last week)
USD/Euro: $1.3683 (from $1.3865 last week)
THIS WEEK
It will be a quieter week for economic data. Earnings reports are winding down with fewer big names announcing – CVS and Coca Cola being exceptions. Inventory and trade figures are highlighted mid-week. The most important data will come on Thursday and Friday with a look at the consumer through retail sales and consumer sentiment numbers.
COMMENTARY
It was a rocky ride last week. We compare the week to a “white knuckle flight” – the irony coming from the fact that we ended the week pretty much on the same altitude as we started it.
Assume it is Monday morning and the stewardess on our flight has just asked us to buckle our seatbelts. The Captain (remember the Big Boys from last week’s e-mail?) has determined that there is turbulence ahead and has decided that he wants to get above it. We rapidly ascend (Monday up 118 points; Tuesday up 111 points on the DOW) only to discover we have mistakenly put ourselves in the path of an oncoming storm. The Captain sends the plane into a nose dive (down 26 points on Wednesday and a steep 268 points on Thursday) only to pull out at the last minute (Friday – up 10) and level us off.
What did we learn from our travels this week besides the fact that the weather (global markets) are not entirely in our control and that seatbelts are warranted? Some flights are smoother than others, while certain flights can be downright scary. But if you reach your destination – no matter how many bumps there are along the way – then perhaps flying isn’t so bad.
Of course, you can choose not to fly. There are alternatives to plane rides. They usually take longer and can cost more, but if you have the time and the extra savings, they may be your best travel plans. The trouble is most people don’t have the patience or the resources to avoid flying altogether, which means many long term investors are best off carefully selecting their airlines.
The big issue for the markets this week was sovereign debt. The focus was on Europe and in particular the plight of Greece, which is having trouble meeting its debt obligations. Greece belongs to the European Union, a sixteen nation block of countries, which is pressuring Greece to fix its finances by slashing spending or increasing taxes. This big stick is accompanied by few potential rewards. In particular, the stronger European nations have expressed reservations for providing Greece with any bailout money. Portugal, Ireland, Italy, Greece and Spain (with the unkindly but popular acronym “Piigs”) are all having credit problems. Bailouts might not be limited to one country – some EU members believe - resulting in weaker European economies all around.
It is the old ‘contagion’ problem. We experienced this with the sub-prime mortgage issue back in 2008 when sub-prime mortgages were a housing problem that suddenly became a global credit crisis. Credit default swaps (think AIG), are once again in the news, this time tied not only to the Piigs but also to European banks and corporations. The rising price of credit default swaps indicates that investors are betting that bailouts might be warranted and that any new-found fiscal responsibility by major European governments could hurt overall economic growth.
Meanwhile, the U.S. has become the safe haven of choice causing the dollar to strengthen. U.S. stocks had been rising on a falling dollar until recently. It is not surprising to see this pattern reverse, as traders reign in their carry trades. Between the dollar moves and problems in Europe, stocks came under pressure this past week. This pattern could continue for a while longer, so keep those seatbelts fastened.
Tune into the “Making Money” Show Weekdays at 5:30pm and Saturdays at 9am on AM790 WPRV or through our website, www.StrategicPoint.com.
*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors.
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