07/02/12: We hope that you had a great weekend and that you have a safe and joyous 4th of July holiday this week. As we know that all of you are, we here at fi-Plan Partners are proud to live in such a marvelous country where the free enterprise system is allowed to enhance the quality of life for ourselves and for our families in so many wonderful ways. Always at the beginning of the market week, we take a “look ahead” at a few items that we will be tracking carefully during the week. These are just a few opinions that we have, and as with life, nothing is certain about them.
- First of all, here’s a “week-at-a-glance” view of what’s coming up over the next five days. Beginning today, the Institute for Supply Management issues its manufacturing index and construction spending numbers for May. Tuesday is a domestic and international mix, as auto makers report motor vehicle sales for June and The Commerce Department releases data on May factory orders. Internationally, IMF head Christine Lagarde holds a news conference after the fund releases its assessment of the U.S. economy. On Wednesday, the U.S. celebrates Independence Day with stock and bond markets closed. Thursday brings the release of the ADP job growth data and The Institute for Supply Management surveys companies for its nonmanufacturing index. The market week ends Friday with the Labor Department reporting on the employment outlook.
What does this mean for investors? It will be interesting to see how the manufacturing data (including auto sales) looks this week. Our concern is that American companies are beginning to “lock up” somewhat in their commitment to new hiring, fearing that the Bush tax cuts may not get extended. It is our opinion that this is having a “chilling effect” on an economy already growing at a slow pace. Uncertainty is never good for markets.
- Now that Obamacare has been upheld, how will the Republicans attack it? First, Republicans are preparing a new assault on the law by planning a vote on July 11th to repeal the entire overhaul. As an overall strategy going forward, Republicans are using the main component of the Supreme Court decision, mainly the Congressional power to tax, as the primary weapon to repeal it. Interestingly, a quirk of Senate rules called budget reconciliation allows the chamber to pass tax-related legislation with only 51 votes instead of the usual 60 required to overcome a filibuster. Should Republicans pick up a handful of Senate seats in November, the party plans to use the tactic to try to knock down the health law. The GOP currently holds 47 of the Senate’s 100 seats.
What does this mean for investors? Health care costs are having a profound impact on American business, particularly small enterprises where most of the new jobs in our country are being created. Across the board, rising health care costs are a very significant threat to corporate bottom lines. On top of that, the Supreme Court in upholding Obamacare has American businesses scrambling to try to figure out what it means to their bottom lines. This is time and effort that could be put into strategic planning, new product development, and hiring.
- Based primarily in energy problems, India is quickly becoming the next “problem” economy. As Europe dominates the headlines and the slowdown in China is certainly not “far behind,” we are increasingly concerned about the impact of India on the world economy. Presently, India is facing an energy crisis that is slowing growth in the world’s largest democracy. The core of the problem is India’s ability to bring electricity to 400 million rural residents, one-third of its population, while at the same time keeping its office buildings lit and its cars running. Shortages of coal, oil and natural gas over the next few years are clearly poised to knock India off of its growth path.
What does this mean for investors? India is a major market, and any slowing growth there will be certainly felt around the world. In addition to Europe and China, we certainly do not need another “add on” that further slows the very weak global recovery.
- And here at home, we’re concerned about the U.S. consumers’ ability to carry the current recovery. When job growth accelerated late in 2011, many experts saw the seeds of a consumer-driven economic rebound. Beginning in early 2012, this dynamic seemed well on track, with retailers reporting strong holiday sales and auto manufacturers selling cars briskly. In April, when the government released its initial look at economic growth during the first three months of the year, the data was encouraging. Spending was growing at 2.9%, its fastest rate in close to two years. Unfortunately, all of these trends have recently reversed. After adding more than 250,000 jobs a month from December through February, U.S. employers have added an average of less than 100,000 for the past three months. As hiring slowed, so did spending. Retail sales have fallen for two straight months and the consumer sentiment index fell in June to its lowest level since December.
What does this mean for investors? Simply put, consumers are worried about the global economic climate, particularly in Europe, “dragging down” American businesses and their own paychecks. In addition, with the current “slack” in the labor market, there is little upward pressure on wages. As financial markets in the United States are 70% consumer driven, having a less confident buyer of goods and services is certainly not a positive trend.
Do you have questions about your portfolio and investments? Please call me at (205) 989-3498 or email me here.
Senior Vice President
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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