05/07/12: 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 next few days. These are just a few opinions that we have, and as with life, nothing is certain about them.
1. Here is a “week-at-a-glance” view of several key market drivers for the next five business days. Beginning today, the Federal Reserve will release consumer data for March. Tuesday has a political focus, as Indiana, North Carolina and West Virginia hold presidential primaries and Wisconsin conducts a primary for the state’s gubernatorial recall. On Wednesday the United States posts wholesale inventories for March. Thursday is very busy both domestically and internationally, as Chairman Bernanke speaks at a Chicago Fed conference on bank structure and competition while China releases trade data for April. Further, the U.S. issues reports on the balance of trade for March along with the most recent weekly jobless claims data. The market week ends Friday with the University of Michigan issuing its initial reading of consumer sentiment for May. Also on Friday, the U.S. producer price index for April is due and China reports inflation data for April.
What does this mean for investors? If they are not already keenly aware of it, investors are truly entrenched in a global economy where a wide variety of factors can drive markets. The American consumer is responsible for 70% of the GDP in the United States and is therefore at the forefront of how markets react. The interesting thing these days is that how the consumer “feels” is coming from so many varied sources: from jobs, to the gas pump, to Europe, to the elections.
2. Events in Europe over the weekend have certainly “set the table” for the beginning of the market week. Obviously the big news over the weekend was the defeat of Nicolas Sarkozy at the hands of the Socialist Party candidate, Francois Hollande. Largely, Hollande was elected as a direct challenge to the austerity measures that have been championed by Germany and that many French are maintaining are slowing economic growth too much. Less clear is what Europeans expect their governments to do differently, as successors such as Holland are still going to find it difficult to pursue policies that are much different from the austerity-focused course that most agree Europe really needs.
What does this mean for investors? The European situation can ultimately be improved, but the political shift will directly impact the timing. If the French return to more of a position of government-driven, Keynesian growth, it seems to us that the process will ultimately take much longer. Though certainly more painful, it appears that the German championed austerity path would be more painful for Europe short term, but ultimately solve the crisis faster. Markets and investors can certainly handle the clear ups and downs, but an “uncertain climate” is the hardest of all.
3. Spain certainly seems to have its hands full at the moment. In the latest move to try to stabilize their situation, Spain may consider pumping government money into banks in an apparent reversal of the initial policy set by Prime Minister Mariano Rajoy. The first bank on the list is the country’s weakest, which just wrote down a considerable amount of its real estate assets. Spain is the 14th largest economy in the world and what happens here, as opposed to Greece, will have meaningful market impact.
What does this mean for investors? A “one-two” punch of Spain and Italy having serious problems simultaneously could quickly elevate an “immediacy factor” to the situation in Europe that we really haven’t seen since last August, albeit in a different way. Simply put, the IMF and EFSF funds as they are now would not be enough to bail these two countries out. Confidence lost with this level of problem could quickly impact markets in the United States.
4. “Unused” lines of credit volume to American business is growing again. In hopefully one more sign of an improving American economy, corporate credit lines extended by banks with over $20 billion in assets have expanded 17% year over year. Companies usually will open these lines with banks when they are considering expanding operations, and because they have fees associated with them, are not just done “casually,” but are done with a strategic growth purpose in mind. Banks and the economy will not benefit until the lines are drawn and used, but the growth in availability is encouraging.
What does this mean for investors? As investors weigh conflicting economic data, these lines may be a useful barometer for gauging when banks could see an even stronger pickup in business lending, thus further accelerating the recent recovery. As with the housing market that we discussed last week, any pickup in such a measure is helpful to how consumers view the future.
Call or email me here should you have any questions or concerns about your investments and how the markets may impact them. I would enjoy talking with you.
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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