After closing out January on a sour note, the markets showed some strength to start out February, opening higher early in the week, only to lose those gains in the latter part of the week. As of the close on Friday, the Dow was off 0.55%, the S&P 500 lost 0.72%, and the Nasdaq dropped 029%.
We saw 100+ point upward moves in the Dow on Monday and Tuesday as we received encouraging economic reports and corporate earnings. Industrial production increased, as well as personal income and spending – each one a sign that the economy is growing. As the week progressed, several factors began weighing on the markets and we experienced a sharp sell-off Thursday, dropping nearly 270 points. The downward trend continued into Friday as the Dow was down nearly 170 points at one time, breaking through the psychologically important 10,000 level. However, it staged an impressive rally in the last hour of trading to finish the day slightly positive.
Two big stories weighed on the markets this week: the debt of European governments and unemployment. First, the debt concerns in Europe are very troubling, especially in Greece. The amount of debt this country incurred has it nearing a debt default. Portugal, Ireland, and Spain are in the same boat, though not quite as bad. The troubling part of this situation is we can see similarities between them and us-massive fiscal deficits, record government spending, and a shrinking labor force. For now, though, the troubles in Europe will weigh on their currencies, thereby strengthening the dollar (Although we may have a weak dollar, it becomes stronger when compared to the Euro).
The other big story of the week came on Friday as the unemployment report came in better than expected at 9.7%, despite a net loss of 20,000 jobs. Last month this number stood at 10.0% and was forecasted to come in at 10.1%. At first glance, the lower rate looks encouraging. However, the metrics used to measure unemployment have been getting skewed in recent months. The amount of discouraged workers has risen steadily and we now have the smallest workforce we have seen since the mid-1980’s. Once these discouraged workers begin looking for a job again, we should see the unemployment number pop higher. That could mark a turning point in the economy and it is something we will be watching carefully. Until then, we remain pessimistic about the unemployment picture.
We have a fairly quiet week coming up, but it will be important to see if the Dow can stay above its 10,000 level. In addition to corporate earnings, Tuesday we get the release of the small business optimism index. The trade balance comes in on Wednesday and we expect that to be lower than the previous month. Lastly, we will be paying attention to the retail sales figures on Thursday as it is expected to come in higher than the previous month.
Where are we investing now?
We are pulling back a little here and not actively doing any buying or selling. We would like to see how the market will play out during this week. It has come a long way in a short time and we expected to see a pull-back at some point. We still remain bullish (optimistic) for the short term, however. If we were to put some money to work, we would continue on the trend we have been following. In equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will head lower despite its recent gains. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are sector we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.
We saw 100+ point upward moves in the Dow on Monday and Tuesday as we received encouraging economic reports and corporate earnings. Industrial production increased, as well as personal income and spending – each one a sign that the economy is growing. As the week progressed, several factors began weighing on the markets and we experienced a sharp sell-off Thursday, dropping nearly 270 points. The downward trend continued into Friday as the Dow was down nearly 170 points at one time, breaking through the psychologically important 10,000 level. However, it staged an impressive rally in the last hour of trading to finish the day slightly positive.
Two big stories weighed on the markets this week: the debt of European governments and unemployment. First, the debt concerns in Europe are very troubling, especially in Greece. The amount of debt this country incurred has it nearing a debt default. Portugal, Ireland, and Spain are in the same boat, though not quite as bad. The troubling part of this situation is we can see similarities between them and us-massive fiscal deficits, record government spending, and a shrinking labor force. For now, though, the troubles in Europe will weigh on their currencies, thereby strengthening the dollar (Although we may have a weak dollar, it becomes stronger when compared to the Euro).
The other big story of the week came on Friday as the unemployment report came in better than expected at 9.7%, despite a net loss of 20,000 jobs. Last month this number stood at 10.0% and was forecasted to come in at 10.1%. At first glance, the lower rate looks encouraging. However, the metrics used to measure unemployment have been getting skewed in recent months. The amount of discouraged workers has risen steadily and we now have the smallest workforce we have seen since the mid-1980’s. Once these discouraged workers begin looking for a job again, we should see the unemployment number pop higher. That could mark a turning point in the economy and it is something we will be watching carefully. Until then, we remain pessimistic about the unemployment picture.
We have a fairly quiet week coming up, but it will be important to see if the Dow can stay above its 10,000 level. In addition to corporate earnings, Tuesday we get the release of the small business optimism index. The trade balance comes in on Wednesday and we expect that to be lower than the previous month. Lastly, we will be paying attention to the retail sales figures on Thursday as it is expected to come in higher than the previous month.
Where are we investing now?
We are pulling back a little here and not actively doing any buying or selling. We would like to see how the market will play out during this week. It has come a long way in a short time and we expected to see a pull-back at some point. We still remain bullish (optimistic) for the short term, however. If we were to put some money to work, we would continue on the trend we have been following. In equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will head lower despite its recent gains. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are sector we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.
