European Markets And US Equity Futures Are Trading Higher
Friday, May 25, 2012, Market Commentary
Market Recap:
Thursday proved to be another volatile day for stocks and commodities, which ultimately closed slightly higher after Italian Prime Minister Mario Monti stated that more European nations were in favor of Euro-bonds than against. Stocks started off down, on concerns of a steeper slow-down of China’s economy after a report indicated that China’s biggest banks may fall short of loan targets for the first time in seven years. Of course, Greece and the European debt saga also weighed on markets. US economic news was also mixed, Durable Goods orders rose less than expected, while Jobless Claims declined by 2000. None-the-less, investors mostly overcame these headwinds, ending the day mixed with Consumer Staple Stocks outperforming and Technology and Energy shares lagging.
Looking Ahead:
So far this morning, European markets and US equity futures are trading higher on speculation that Germany will agree to the formation and sale of EuroBonds. These reports are un-confirmed, and in our view seem unlikely given the political climate in Germany. As traders prepare for the long Memorial Day weekend, we expect trading to be light and most likely driven by the Consumer Confidence data that will be released at 9:55 AM this morning. Looking into next week, we will focus on the upcoming ISM report, which will provide the first peek at how the economy is doing in the month of May. Upcoming unemployment reports on Wednesday and Friday are also likely to drive market and investor sentiment.
Earlier in the week with discussed our growing concern with the lack of attention market’s are placing on Iran. Next week marks the first set of deadlines set by the International Atomic Energy Agency and the United Nations for Iran to comply with certain inspection requirements. So far, we have not seen any evidence that any concrete progress has been made. To the contrary, recent reports by various agencies indicate that Iran continues to defy regulators. In our view, the opportunity for diplomatic actions is coming to a rapid end. As a result, we could see flaring tensions and a potential spike in Oil prices in coming weeks. Tune into Money Matter with Gary Goldberg weekdays at 10:05 AM by visiting www.financialtalkshow.com to hear the latest discussion and thoughts on the economy and markets.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
European Shares Sold Off
Thursday, May 24, 2012, Market Commentary
Market Recap:
Wednesday was shaping up to be an ugly day for investors, with the DJIA falling nearly 200 points at its low. However, stocks trimmed their losses and rallied to close flat and slightly positively after a report surfaced that the ECB would guarantee deposits at banks. Additionally, investors benefited from solid US economic news, with a report showing April New Home Sales beating expectations. None-the-less, global contagion risks remained and were highlighted by weakening Japanese exports. Commodities moved lower, primarily on worries of a more pronounced slowdown in China.
Looking Ahead:
Overnight, European shares sold off after a report showed that German Business Sentiment dropped to a low and was revised down for last month. Separately, Chinese manufacturing and exports fell further in the month of May as well, adding to volatility in Asian markets. Markets appear to be going through a phase of “Euro news” fatigue, ignoring or at least not reacting to global macro news – perhaps explaining why futures are indicating a higher open for US equities so far. Additionally, our research team, led by our Chief Investment Officer Bill Krivicich reported that the overall market sentiment indicators we are following have stopped deteriorating for most asset classes over the past few days. Since last Friday’s close, global markets, including US markets are actually up a little bit. None-the-less, although near-term fears appear to be subsiding, we think this is most likely due to Eurozone Fatigue as oppose to improving sentiment.
This morning’s Jobless Claims data shows a slight decline to 370,000 continuing claims, generally in line with expectations. Separately, Durable Goods Orders rose 0.2% - more than the 0.3% drop that was forecast. However, when stripping out Auto orders, the number dropped by 0.6%, slightly weaker than expected.
Tomorrow’s consumer sentiment number may also be critical to investors as we enter the long Memorial Day weekend. Although many would expect volumes to be low during the shortened Memorial Day week, and entering into the summer, we think that volume may actually pick-up over the next couple of weeks. We base this on the fact that Russell Investments is about to engage in their annual rebalancing and reconstitution of their indexes (link to the official information click here) Given that a very large number of portfolio managers and of course index funds are closely tied to the allocation of these indexes, additional trading is likely. For more on this and our overall market outlook, listen to our daily radio program, Money Matters with Gary Goldberg, by going to www.financialtalkshow.com weekday mornings at 10:05 AM.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
European & Asian bourses sold off nearly 2%
Market Recap:
Stocks spent most of the day in positive territory after a better than expected housing report showed April sales rising 3.4%. However, stocks and commodities sold off and ended down after Dow Jones reported that former Greek Prime Minister Lucas Papademos said that preparations were underway for Greece to abandon the Euro. Separately, Fitch down-graded Japan’s debt to A+. Although the move was anticipated, the timing certainly did not help. S&P sectors were mixed with Financials and Industrial shares leading the most.
Looking Ahead:
Overnight, European and Asian bourses sold off nearly 2% on increasing concerns that time is running out to come up with realistic alternatives to Greece leaving the Eurozone. Policy and Law makers are challenged to come up with a "less painful alternative" for the Greek people than adhering to the sharp austerity measures the previous government agreed to or leaving the Eurozone. In addition to the normal anxieties about Europe, markets are unsettled today about a report indicating that the idea of Euro-bonds, a type of continental treasury bond, will not gain German support and is therefore not likely to move forward. In an additional example of the growing divide between Germany and the Southern European countries like Spain and Greece, Germany auctioned off 2 year bonds today, which were oversubscribed, at a zero percent (0%) yield. By way of contrast, 2 year Spanish Bonds are yielding over 4%.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Stock & Commodities Rally Based on G-8 Meeting
Market Recap:
Stocks and commodities rallied sharply yesterday, closing up more than 1% across the board with industrials and material stocks leading the way. Investors gained a more optimistic view after this week’s G-8 meeting at Camp David, where leaders agreed that they wanted Greece to remain in the Eurozone and part of the Euro currency. Additionally, comments from China detailing a more growth and consumption oriented approach to policy also gave investor sentiment a boost. Unfortunately, in spite of the positive tone and good intentions, neither G-8 leaders nor Chinese officials backed their statements with any specifics.
Looking Ahead:
Yesterday’s rally was based on a more positive political tone from G-8 leaders as well as encouraging growth oriented policy discussions from China. However, we expect this sentiment to thin out over the coming days as investors realize that the rhetoric is little different than what has previously been brought forth. In our view, as long as European politics and fears surrounding the banking sector remain at the forefront of investors’ minds, it will be difficult for markets to rally in a meaningful manner. The June 17th Greek elections may well be a catalyst for resolution. On a fundamental basis, until large investors (primarily hedge funds) become afraid of Europe, the volatility is likely to remain. Specifically, hedge fund managers need to be afraid of Europe, via the ECB, IMF, ESFS, etc… is willing and will deploy all of its weapons to assure market liquidity and avoid a banking crisis. The current political climate is focused on what to do in the event of a Greek exit (see today’s NYT opt-ed from the Polish Finance Minister as a great example of the style and type of thinking that is dominating Eurozone politicians). If the climate were to change to a focus of what needs to be done to avoid a Greek exit, investors would be much more wary of shorting the Euro currency, European banks, or the European markets as a whole. The next few weeks could prove to be paramount in effecting this change. Tune into Money Matters this morning at 10:05 AM by visiting www.financialtalkshow.com for a deeper discussion on this and other subjects.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Corporate Earnings and Revenues Continue to be Strong
Monday, May 21, 2012 Market Commentary
Market Recap:
Stocks and commodities extended their losses, closing the week down 4% from where they started. Worries about Greece, Spain and the European debt crisis drove market sentiment all week. The story of the week, of course, was Facebook finally going public and when it did, defying prognosticators who were expecting a lot more volatility than actually occurred - the stock closed 23 cents above its IPO price.
Looking ahead:
This past weekend, leader of the G8 countries met at Camp David to discuss and in the hope of coming up with a solution to the European debt problem. North and South are very much pitted against each other, with Germany's economy booming, as are the economies of Scandinavia and other northern-European nations, while the southern countries are languishing and in terrible trouble. Given the political climate, it will take tremendous efforts to bring the two sides together. As much as we suspect news about Europe will continue to dominate the headlines, the real story for U.S. investors is that all major indexes and many sectors of the S&P 500 have broken through their technical support levels. Now that earnings season is essentially over, and investors will have to focus on macro-economic news, additional weakness and bad news - such as the $2 billion plus trading losses by JP Morgan, could be the straw that breaks the camel’s back. None-the-less, there are also positives for investors to consider. In spite of low expectations and growing concerns over weakening global economies, corporate earnings and revenues continue to be very strong. Moreover, many of today’s global leaders are now trading at valuations near that of March 2009, making them attractive for long-term value conscious investors. In our view, markets may experience a bout of increased volatility over the next few weeks, which may be the sign of the next great bull-run.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Risk of Greek exit rises
Friday, May 18, 2012 Market Commentary
Market Recap:
It’s Groundhog Day in May… the same story persists and dominates the headlines – Greece, Greece, Greece. Markets sold off sharply yesterday after Fitch downgraded Greece to CCC and highlighted the increased risk of the Mediterranean nation exiting the Euro and Eurozone. Markets also came under pressure after Moody’s informed a number of Spanish banks that their credit rating is being lowered as well. Weak economic reports from the United States did not help matters either. The Philadelphia Manufacturing Index contracted and missed forecasts. As investors fled the stock market, the ten-year Treasury yield fell to record lows – below 1.7% - on safe haven buying. Gold and Silver also benefited from investors desire for safety.
Looking Ahead:
Facebook will go public today. Trading is expected to begin at 11:00 AM on the NASDAQ under the symbol FB. There is much excitement around the long awaited IPO, but we urge investors to be cautious as the first few hours or days of trading could be very volatile. As we pointed out yesterday, this is just the beginning of Facebook’s public life.
As the likelihood of Greece exiting the Eurozone grows, investors are concerned about the impact this could have on their retirement portfolios and other investments, as well as expressing concerns of the impact on the economy and the global financial system. There have been many research reports and articles written about this. We’ve read many and have had numerous conversations on the subject and the potential impact such an event could have. We have come to several conclusions regarding this:
1. Markets will remain volatile until the European Sovereign Debt crisis is resolved – this may take several years.
2. In spite of the added volatility and investment risks, there will be periods when the broader markets will rally on optimism. More importantly, the expected volatility will provide astute investment managers ample entry points into the market that could translate into significant investment gains over time (think back to February and March 2009 – few were comfortable with the market volatility, those that invested have benefited from a 120% run-up in the S&P)
3. Recent press reports have suggested that there has been a flight of capital out of Greek and Spanish banks to the north and into Swiss Francs. ECB money movement data reveals that although assets have been leaving Greek banks, most have remained in Euro currency (invested in Germany, Netherlands, Luxemburg). This means that although the impact to Greek and Spanish banks is clearly negative, the impact on the Eurozone as a whole is negligible; ergo, nice story, little real world impact.
4. Assuming that Greece and the rest of Europe cannot come to a mutual agreement and arrangement and Greece does begin talks of an exit, this will take time. We do not believe that there is a significant risk of a disorderly default or exit. Rather, we think that all parties will work together to orchestrate a slow, mechanical, orderly exit. We believe this, because an exit out of the Eurozone will be costly for all, a disorderly exit could be disastrous – in particular for Greece.
5. In the event of a Greek exit, the ECB, IMF and European Finance Ministers are likely to become very aggressive in insuring that a similar fate does not occur to Spain or Portugal (we do not believe this risk exists with Italy or Ireland).
An exit from the Eurozone by Greece is in no-one’s best interest. However, should it occur, it may prove to be a net positive for economies and markets around the world, once the shock and reality of the event subsides. Central Banks around the world would very likely remain very engaged in providing liquidity, lending, and funding mechanisms, as well as ensuring that interest rates remain low for a very long time. This may fan the flames of inflation, but not for some time. Our view remains that short-term volatility aside, high quality, high dividend paying stocks remain attractive for long-term investors seeking a reliable income stream and the opportunity for capital appreciation.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
FOMC Releases Minutes from Meeting
Market Outlook:
Yesterday, the Federal Reserve Bank Open Market Committee (FOMC) released the minutes from their latest meeting. Not surprisingly, worries were expressed about the ongoing troubles in Europe and the potential for contagion risk to the American economy. More importantly though, in our view, there appears to have been a pick-up in sentiment by the Governors, showing a little more confidence in the sustainability of our economic recovery and expansion, as well as having a more positive outlook for the U.S. economy. This is supported, in part, by the relative strength and improvements in U.S. Industrial Production this year. In April, Industrial Production rose by 1.1% month-over-month, much more than forecast. We believe that today's release of Leading Indicators (10:00 AM) should support this trend and signal further progress. This morning's Jobless Claims number provided little direction, as claims were roughly in line with estimates, at 370,000 continuing claims.
Overnight, Asian shares were mixed and European bourses sold off as a result of the ongoing political and economic woes plaguing Europe. Chinese markets rose over 1% on the tails of bank easing and the expectation of better than expected trade data and lower than expected inflation figures; which are set to be released next week.
Separately, the Financial Times reported that the European Central Bank is now excluding 4 Greek banks from "regular liquidity provisions", meaning that the banks will have to rely on "emergency" reserves. This move is designed to put additional pressure on Greece, Greek politicians, and Greek banks to stick with the terms of the bailout agreement. In our opinion, this is a perfect illustration of the increasing divide and political jockeying that is occurring in Europe.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Stocks Remained Higher
Market Recap:
Stocks remained higher most of the day after better than expected housing gains and general economic optimism. However, markets began to deteriorate after Federal Reserve meeting minutes showed that several Fed Governors were now in favor of additional quantitative easing should the U.S. economy deteriorate further. This news, along with increasingly anti austerity rhetoric from Europe ultimately overwhelmed investors attempts to remain positive and drove stocks lower. Economically sensitive sectors, including Financials, Tech, and Materials, contributed most to the decline, while Healthcare and Staples managed modest gains.Commodities were also mostly lower, with energy leading the way down. Currently fears of a significant global slowdown are trumping supply disruption concerns. Investors should be cautious as this may not last (for more on this subject, read our piece on the middle east from 5/16).
Tomorrow mornings jobless claims figures are likely to drive early hour trading.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Critical European Events on the Horizon
Investors beware – critical European events on the horizon:
May 31 – Irish referendum to ratify European Fiscal Compact. The risk: Based on populous sentiment, if Ireland doesn’t ratify the austerity measures, the ECB and IMF may withhold funding, which would likely drive the country back into recession
June 10th – First round of French legislative elections. The risk: More power to Mr. Hollande’s socialist party could drive a bigger wedge between France and Germany, potentially risking further destabilization of the Euro.
June 17th – Second round of French legislative elections.
June 17th – Possible date for Greek runoff elections. The risk: A win by the leftists leader Alexis Tsipras could exasperate investor concerns over the viability of the Euro, Eurozone and will likely mark the beginning of the end of Greece’s inclusion in the Eurozone and Euro currency
July 1st – European Stability Mechanism with lending capacity of €500bn receives its final vote. The risk: If Greece and others break their promise to Germany and the ECB about implementing austerity measures, the Troika may not get funding approval and may not have the resources to provide added liquidity to fragile economies like Spain, Portugal and Ireland. This would greatly increase the possibility of wider defaults and deeper recessions for these economies. If Greece does back out of the agreed to austerity measures and indicates a willingness to exit the Euro, Germany and others are likely to put forth monumental efforts to save and ring-fence Spain and Portugal. Unfortunately, there is no way to tell what might occur until after June 17th – remaining defensive is likely to be the best strategy for the time being.
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy
Developments in Middle-East
Wednesday, May 16, 2012, Market Commentary
Market Recap:
In spite of a decent start for stocks, markets deteriorated in the afternoon as worries over a Greek exit from the Euro and Eurozone dominated investors’ minds. Monday and Tuesday’s economic reports were a bit stronger than expected, and indicated mild top-line and core inflation numbers. This data continues to support our thesis that US companies, in particular large firms with strong balance sheets, are likely to be the best performers in this fragile environment.
Looking ahead:
Although Greece, Spain, and the rest of Europe are likely to remain at the forefront of investor concerns, we are also closely paying attention to developments in the middle-east. Recent reports by the International Atomic Energy Agency (IAEA) and the United Nations Security Council (UNSC) are elevating our levels of concern regarding Iranian nuclear ambitions. Next week, the IAEA are set to travel to Tehran and other locations inside Iran to further research Iran’s compliance with international mandates; this comes on the heels of reports showing strong suspicion and some evidence that Iran has been “white washing” their nuclear research sites to remove evidence of weapons testing. Separately, Iranian influence in Shiite elections in Iraq is growing, which is jeopardizing oil flows to Europe and eventually the United States. Suffice it to say that the next 30 days will be filled with enough geo-political events to fill volumes of encyclopedia. For the latest updates, analysis and our thoughts on the investment landscape, listen to our daily radio program, Money Matters weekdays at 10:05 AM by logging onto www.financialtalkshow.com
The Gary Goldberg Financial Services Strategic Investment Committee
Optimistic by Nature, Defensive by Strategy