06/25/12: It’s certainly hard to believe that the end of this week already puts us halfway through 2012. As we always do at the beginning of the market week, we wanted to give you 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.
1. First of all, here’s a “week-at-a-glance” view of what’s coming up over the next five business days. Beginning today, new home sales for Monday are reported. Tuesday brings the release of the S&P/Case-Shiller home price index for April while The Conference Board issues its Consumer Confidence Index for June. On the political front, Utah voters participate in a presidential primary. Data on durable-goods orders and pending home sales for May are expected Wednesday. Thursday is a very important day both domestically and internationally, as final figures for first quarter GDP will be released and European Union leaders begin a two-day summit. The market week ends Friday with The Commerce Department reporting on personal income and spending and The University of Michigan surveys consumer sentiment.
What does this mean for investors? We are particularly interested in the European Union meeting and all of the data being produced this week on consumer sentiment. Needless to say, events in Europe are becoming increasingly impactful on consumer sentiment in the United States, and this in turn is a major force on markets. “Lock up” in spending among anxious consumers worried primarily about jobs will be very significant this summer in dictating how much market volatility will be experienced.
2. The Supreme Court will rule this week on Obamacare. The Supreme Court is set to decide this week (and possibly as early as today) on the constitutionality of the Patient Protection & Affordable Care Act. Of the possible outcomes, the court could uphold the whole statute, it could strike down part of the measure, it could invalidate the entire law, or it could decide that the challenge to the insurance requirement is premature. In a broader sense, it is a mandate on how far reaching federal powers should be in relation to the police powers of states.
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. What the Supreme Court decides is bound to have far reaching market impact either way.
3. As expected, Spain has now made a formal request for a bailout of its banks. Spain has now formally asked the European Union for a bank rescue of up to 100 billion euros. Economy Minister Luis De Guindos maintains that this should be enough to cover all the needs of the country’s banks and to provide a security buffer. Spain aims to set the final size of the bailout at a later date and hopes to complete it by July 9th.
What does this mean for investors? The sooner that the “final” requirement can be decided for Spain, the better, and hopefully the bank support package will help avoid a “next step” of actually having to bail out the country. Markets get punished by uncertainty, and Spain’s debt auctions will continue to get crushed as uncertainty on the country’s finances remains.
4. State and local government spending as a percentage of national GDP is continuing to fall. Last year, spending and investment by state and local governments was $1.8 trillion, or 11.9% of U.S. gross domestic product. This is the lowest percentage level since 2006. Forecasting firm Macroeconomic Advisers projects state and local government to only be 10% of the total by 2020, which would be the lowest level since the 1960s. State and local governments have “subtracted” from U.S. economic growth in every quarter since the middle of 2010. Unlike the federal government, most cities and states have to balance their budgets. They also can’t print money, which means that when times are tight their two primary choices are to pass new taxes or cut spending. Over the past few years, they did both, but relied more heavily on cuts.
What does this mean for investors? Simply put, the private sector will need to take up this slack. This is yet another reason for the federal government to reduce the regulatory burden on American business so that innovation can spur private sector growth, which is a much better long-term solution anyway.
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.
Because of regulation, comments have been turned off.