05/01/12: As we bring April to a close and begin the month of May, it’s really hard to believe that four months of 2012 are already in the books. At the beginning of this market week, we wanted to give you a “look ahead” at a few items that we, as an investment firm, 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. First, here is a “week-at-a-glance” view of several key market drivers for the next five business days. Beginning yesterday, President Obama held talks with Japan’s Prime Minister Noda in Washington on data and personal income for March was released. Today focused on domestic manufacturing as auto makers release their sales figures in the U.S. for April, and The Institute for Supply Management issues its April manufacturing survey. On Wednesday, chief executives of major U.S. banks will be discussing regulatory matters with Federal Reserve Governor Tarullo, and the European Union finance ministers meet in an effort to solidify rules on bank capital. March factory order data for the U.S. will also be released. Thursday brings the publication of April ISM data for the U.S. service sector, and the U.S. and China are scheduled to begin their annual Strategic and Economic Dialogue meeting in Beijing. The market week ends Friday with the U.S. issuing the unemployment rate and non-farm payrolls for April. Over the weekend, France votes in the second round of presidential elections on Sunday, and Greece also holds a parliamentary ballot the same day.
What does this mean for investors? There is a considerable amount of “market driving” data coming out this week that reveals how both manufacturing and employment are holding up as we approach the summer. For the past couple of weeks, though, the “random political element” generated from the French elections will give the week an interesting “overlay.”
2. The Dow has enjoyed its best run in five years. The Dow Jones Industrial Average ended April with a 1.59 point gain, its seventh consecutive monthly advance and the longest winning streak in five years. April also happens to be the Dow’s best performing month of the year and 2012 marks the eighth consecutive time that the index has been positive in the year’s fourth month.
What does this mean for investors? Consumer confidence is the primary driver of markets. Improving data, such as the DJIA, that the public pays attention to and feels better about, is always a good thing.
3. Spain has entered a recession while the S&P downgrades two of its major banks. Like the United Kingdom, Spain has entered a recession in Q1 for the second time since the financial crisis as GDP shrank 0.3%. Although, this was better than forecasts of -0.4%. At the same time, S&P downgraded 11 banks, including two of Spain’s largest. These downgrades come right on the heels of a two-notch lowering of Spanish sovereign debt last week. Also, the European Commission is reportedly preparing a kind of “Marshall Plan” to stimulate growth in Europe via public and private investment in infrastructure, renewable energies and high technology. Including initiatives in Spain, this suggests that the Euro crisis is no longer just “financial” in nature.
What does this mean for investors? Where the GDP of Greece is no larger than that of Dallas Fort Worth, Spain is a major world player and what happens here (along with Italy) really matters. Simply put, Europe’s ability to impact markets is still very much alive and seems to be entering a “new phase” with larger countries being at the forefront. Our main concern is the size of the “backstop” funding levels of such agencies as the IMF if Italy or Spain (or both) need bailouts.
5. Nearly six years after U.S. home prices started falling, the housing market appears to be introducing us to a new phrase: “A prolonged bottom”. Home builders cut back heavily in the past four years and began construction on just 434,000 single-family homes last year, the lowest level on record. Research firm Zelman & Associates estimates builders will start construction on 540,000 homes this year, a 24% increase. Simply put, the “starvation diet” of new homes is beginning to create some level of “equilibrium” in the market, although the “shadow inventory” of foreclosures is still a problem. The large amount of foreclosures won’t prevent a housing recovery, but it will “drag it out” over a few more years. The best summation of the current housing market is that it has “stopped getting worse” and it may slowly be getting better.
What does this mean for investors? Again, “confidence gained” is a major market component. As with their stocks and bonds, individuals “feel” wealthier when a healthy housing market is moving values upward. Bringing back a robust housing market in the United States is essential to a recovery that is sustainable.
As always, feel free to call or email me here should you have any questions about the markets or your portfolio.
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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