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 3/12/10
|
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.
For your convenience the sources
have been listed below:
www.world-exchanges.org/statistics/ytd-monthly
www.bloomberg.com/apps/news?pid=20601087&sid=alxKmD3w0y...
www.bloomberg.com/apps/news?pid=20601087&sid=aSWnhM4BH2zA
www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
www.forbes.com/feeds/ap/2010/05/03/personal-finance-us-econom...
news.yahoo.com/s/ap/20100507/ap_on_bi_go_ec_fi/us_consumer_credit
www.wisdomquotes.com/002054.html
