02/13/12: First of all, we hope that everyone had a good weekend! In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s our opinion on four major decisions that could have impact on markets and investors this week:
1. Here’s a “week-in-a-glance” view of what’s coming up in the next five days. Beginning today, President Obama releases his budget proposal for fiscal 2013. On Tuesday, the U.S. releases data on retail sales and export prices for January. Wednesday brings three significant events split between domestic and international: (1) the Federal Open Market Committee (FOMC) issues minutes of its January meeting, (2) Euro-zone finance ministers meet to consider Greek bailout plans and (3) January industrial production numbers for the U.S. are released. Thursday brings housing start data and the producer price index for January while the week closes off on Friday with publication of the consumer price index along with data on leading economic indicators.
What does this mean for investors? Simply put, that market influences come from a wide variety of places these days and many forces are impacting investors that must be carefully tracked.
2. Greece passed a financial package on Sunday that is sure to get considerable attention this week. As we have stated many times over the past few months, both in this blog and elsewhere, Europe will continue to be a major “volatility threat” for markets in 2012. This weekend, the two largest political parties in Greece, Pasok and New Democracy, supported a measure that pares back minimum wages, the national budget and pensions. According to this morning’s Wall Street Journal, Euro-zone finance ministers last week set the Greek parliament’s approval of the package as a condition for Greece getting a second bailout from Euro-zone governments.
What does this mean for investors? Where Europe had been relatively quiet for the last couple of months, this puts the issue right back in front of the markets. What is fascinating to us is how small the Greek economy is (its GDP is approximately the size of Dallas-Fort Worth) relative to the world-wide attention that the issue is garnering. Riots in the streets have a way of doing that.
3. U.S. factory orders really helped “counterbalance” negative political impacts on markets in 2011. Recent data on orders of manufacturing technology, a broad category that includes advanced machine tools and other production equipment, rose 66% from 2010 to $5.51 billion in 2011. Orders hit a high point in the summer as companies hurried to take advantage of tax breaks on new equipment that were reduced at the beginning of this year. As we noted in our financial blog last week, U.S. companies have really been “heroes” lately, bringing manufacturing capacity back on shore, expanding other operations as cheaper energy is giving us a new category of production cost advantages, and buying significant amounts of capital equipment.
What does this mean for investors? That once again in 2012, there appears to be a “tension point” for markets with European volatility and good U.S. productivity somewhat at odds. Which impact will ultimately win out and drive markets more?
4. There are some interesting market comparisons for the beginning of 2011 and the start to 2012. Does this sound familiar? In the early months of 2011, the unemployment rate fell to its lowest level in close to two years, growth was picking up and inflation was modest. Most economists expected gradual upward momentum to pretty much carry through the year. What happened instead? Japanese earthquakes and tsunamis, Arab uprisings. European volatility and the debt ceiling debate. On top of all that, job growth stalled out. We have begun 2012 in good fashion, very much the same as we did last year, before a plethora of geopolitical impacts hit markets.
What does this mean for investors? The good news is that there are some reasons to believe that the U.S. is on better fundamental economic ground for this year, mainly as it concerns jobs. In 2011, much of the drop in the unemployment rate was driven by people simply giving up. Gains in 2012 seemed to be supported by actual hiring across many corporate sectors. U.S. employers are expected to add more than 2 million jobs over the next 12 months, a pace of growth that we have not had since 2006. A recent Wall Street Journal survey of 49 economists puts the odds of a 2012 recession at just 16%, down significantly from 33% as recently as September.
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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