Financial Market Update
StrategicPoint of View®
June 7, 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
Economic reports (construction spending, factory orders, productivity – which reflected mixed progress) were overshadowed by a very disappointing jobs report (see below). News out of Europe brought concerns, as the new Hungarian government made a blunder – labeling their economy as a “grave situation” revolving around profligate deficit spending. Over the weekend Hungary declared that it was not Greece and would institute a formal deficit cutting plan.
S&P 500: 1,065 (down 2.20% for the week and down 4.48% on the year)
Dow: 9931 (down 2.03% for the week and down 4.47% on the year)
NASDAQ: 2219 (down 1.68% for the week and down 2.20% on the year)
10-year: 3.21% (from 3.30% last week)
Crude Oil (July): $71.51 (from $74.09 last week)
Gold (June): $1,216 (from $1,212 last week)
USD/Euro: $1.1973 (from $1.2271 last week)
THIS WEEK
It will be a somewhat thin week for economic data. Investor attention will likely focus on the hot spots around the globe. Consumer credit, inventories, the beige book of economic activity and trade will lead up to the one telling statistic: Friday’s report on May retail sales. Will consumer spending continue to step up or stall? This is a huge question for the economic recovery and, hence, the markets.
COMMENTARY
A client reminded us this week that the world really isn’t coming to and end. She was a child during the Depression and while matters were grim back then, her family was smart enough to plan their savings and take advantage of the very low cost of living. Since then she has seen succeeding decades offer healthy times inter-mixed with disappointing times. In the end, the world is still here, she is doing fine and so is her hope for the future. We mention this story, before launching into this past week’s set backs, because it is all too easy to get mired down in the moment.
The markets went through a reality check on Friday, focused around the dismal jobs report. Expectations had been for an increase of 540,000 jobs – 417,000 of which would be temporary census workers with the balance (123,000) in new jobs. These numbers did not materialize. Instead, the job totals increased 431,000 with 95% coming from census employment. True, unemployment inched down (fewer labor force participants) as did the number of underemployed, while the length of the workweek and hourly earnings were up. But overall, it was obvious to many investors that the US economy is not mending as fast as anticipated.
Add in the Gaza saga, Hungary’s sovereign debt issues, the decline of the euro to a four year low, and the expanding oil slick in the Gulf, and there was not a lot to cheer about. While all of these issues can be resolved, the fact that the list keeps expanding is disconcerting.
Not many months ago, the “New Normal” was scoffed at by bull market pundits espousing the V shaped recovery. Now modest economic growth and a jobless recovery are accepted, lending support to the current 12% correction. More importantly, investors are beginning to recognize that it is going to be a long haul to get to a satisfactory new normal, not the 6-18 months that is the typical recovery time following a recession.
In the immediate future, we still have to contend with jittery markets which have yet to translate the long term into the short term.
Picture two buttons: one large red one labeled “Risk Off” and another big green button marked “Risk On.” Then imagine an investor standing in front of the two buttons. Last year our trader was leaning on the green button – hard. Taking on risk (equities, currencies, commodities and high yield) was the norm. Buying on dips was the mantra.
This year our trader seems trigger happy and a bit confused: Go - stop, go - stop, GO - STOP! His fingers flash between the two buttons, first buying equities and then madly selling them.
Sometimes rapid market moves can lead to a breakout one way or the other, as coiled uncertainty pushes towards conviction. With so much energy caught within a tight trading range, the question becomes which way out and by how much? That is what we are carefully watching.
Tune in to News Talk 630 WPRO and 99.7 FM daily for our "Making Money Updates". Get the latest market news and our take on the day's events with our market commentary at 8:10am and 5:32pm. For more information, visit 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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