Market Update
July 12, 2011
Unemployment Concerns Flare Up, Investors Should Remain Cautious
Friday saw one of the worst US unemployment reports in the last year, with the economy adding only 18,000 non-farm jobs in June. This caused the employment number to reach 9.2% from last month's 9.1%, and the report also showed an increase in the number of people exiting the job market (as well as the headline unemployment number).
This report is a stark reminder of the serious domestic issues that have not yet been resolved. The recent focus on European sovereign problems has served as a distraction for the market, but if there is anything to glean from this report, it is the fact that we also have our own domestic issues to focus on.
A stagnant US job market has several implications:
- Congress will be more motivated in their debates over taxes and the debt limit to find serious solutions.
- The Fed is less likely to raise rates in the near future, but they may also consider further quantitative easing.
- Banks may become more bearish in their market outlooks, which can negatively impact the stock market.
We remain cautiously optimistic. Uncertainty abounds in the global recovery as well as America's ability to strongly bounce back. Hope of a quick recovery may be fading, but if Congress becomes more productive, things could soon turn around.
Have a great week,
Greg
Market Update
April 18, 2011
Stocks Drop on S&P Comments
U.S. stock indexes fell after it was announced that the rating firm Standard and Poor's has lowered their credit outlook for U.S. Treasuries. The Dow dropped more than 240 points during the day's session before staging a partial recovery to close on a 140 point loss.
Standard and Poor's lowered their outlook for the United States AAA rating of Treasury debt over increasing concerns that Washington will be unable to reach a political compromise that will tame the federal government's enormous deficit problem. Standard and Poor's announced today that there is a one in three chance that the AAA rating of U.S. Treasury debt will be downgraded sometime in the next three years. Below is a chart of the past week's Dow Jones Industrial Average.
Bonds prices move higher
Treasury prices initially fell at the start of trading today, but soon recovered and rose by the day's close. Bond prices grew stronger after the S&P's announcement due to their safety amidst falling stock prices as well as concerns that Washington cutting the deficit too quickly could undercut a budding economic recovery. Below is a chart of several of the bond investments that we follow and how they have performed this past week.
The Bottom Line
Standard and Poor's negative outlook for U.S. Treasury debt has been a long time coming and arrives as no surprise to us. We have been concerned about the U.S. deficit and the pressure it is putting on the investment markets for some time. We have been adjusting our allocations this year in part out of concern about these issues, and today's announcement only confirms our direction. Still, investors have given voice to their leeriness of the U.S. deficit. We will have to wait and see if Washington gets the message.
Market Update
January 7, 2011
Bond prices ended higher on the week with stocks down following weaker than expected economic news. Here is a quick recap of a fairly quiet week for all of the markets:
Jobs, Jobs, Jobs: Employers added 103,000 jobs in December which sounds good but was not enough to meet analysts' expectations (hopes), nor was it enough to signal a turnaround in the jobs market. Here are a few highlights of the report:
- Employment in the services industry showed the most hiring with 105,000 new jobs added last month.
- State governments cut 20,000 jobs in December as states everywhere struggle with budget shortfalls.
- The Federal government made up for some of the states' firings by hiring 10,000 new employees,
and the manufacturing sector added 10,000 jobs to their payrolls.
Overall the report was somewhat disappointing to analysts which had estimated that the country would have created something around 140,000 jobs in December. Stock prices fell and bond prices rose on the release of this data.
Bernanke: Federal Reserve Chairman Ben Bernanke told the Senate Budget Committee that he sees evidence that a "self-sustaining" recovery is taking hold in our economy but it is not strong enough to make the Federal Reserve consider cutting off the $600 billion Treasury purchase program that is scheduled to continue through July. Bonds rallied on this news.
The chart below shows how stock prices (S&P 500 Index) traded this week.
Meanwhile bond prices ended the week slightly higher.
And here is a chart plotting this week's action of both stock and bond market indicators.
Summary
This was a fairly quiet week for investors. Volatility in all markets has been unusually quiet with investors' attention remaining mostly on the economy. Unusually low volatility is usually replaced with a period of unusually high volatility, so stay tuned. We have a slew of new economic data scheduled for release next week which should wake the markets up.
Take care,
Greg
April 18, 2011
Stocks Drop on S&P Comments
U.S. stock indexes fell after it was announced that the rating firm Standard and Poor's has lowered their credit outlook for U.S. Treasuries. The Dow dropped more than 240 points during the day's session before staging a partial recovery to close on a 140 point loss.
Standard and Poor's lowered their outlook for the United States AAA rating of Treasury debt over increasing concerns that Washington will be unable to reach a political compromise that will tame the federal government's enormous deficit problem. Standard and Poor's announced today that there is a one in three chance that the AAA rating of U.S. Treasury debt will be downgraded sometime in the next three years. Below is a chart of the past week's Dow Jones Industrial Average.
Bonds prices move higher
Treasury prices initially fell at the start of trading today, but soon recovered and rose by the day's close. Bond prices grew stronger after the S&P's announcement due to their safety amidst falling stock prices as well as concerns that Washington cutting the deficit too quickly could undercut a budding economic recovery. Below is a chart of several of the bond investments that we follow and how they have performed this past week.
The Bottom Line
Standard and Poor's negative outlook for U.S. Treasury debt has been a long time coming and arrives as no surprise to us. We have been concerned about the U.S. deficit and the pressure it is putting on the investment markets for some time. We have been adjusting our allocations this year in part out of concern about these issues, and today's announcement only confirms our direction. Still, investors have given voice to their leeriness of the U.S. deficit. We will have to wait and see if Washington gets the message.
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