April flowers have brought May showers for the Markets?
Confidence – it’s something that investors seem to be lacking at the moment. Last week began with a strong rally as news about Europe’s debt crisis was alleviated by the announcement of a $1 Trillion aid package for Greece. The euphoria didn’t last though, as investors quickly realized that the fundamental problems causing the crisis still exist. Violence and rioting fueled by the so-called “austerity measures”, combined with ongoing weakness in Spain and Portugal also fanned the flames of investor anxiety.
Recent turmoil in Europe has led to considerable weakening of the Euro against the dollar, resulting in concern that there will be a drop in demand for U.S. exports. Such a drop could hurt the recovery that U.S. based companies have been enjoying – particularly manufacturers. Commenting on this, Quincy Krosby, chief market strategist at Prudential Financial said, "Manufacturing has been doing very well. Exports have been doing very well. And if there is any fear that the global engine is going to slow, even at the margins, it creates uncertainty.” Despite positive reports from so many areas of the U.S. economy, fear has prompted investors to pull over $12.4 billion out of equity funds in the last 2 weeks alone. At least for the moment, it seems that all eyes are on Europe.
The ride may continue to be rough for a while. The Chicago Board Options Exchange's Volatility Index — commonly known as the market's fear gauge — is up 79% since April 26, when the Dow closed at its 2010 high of 11,205. This spike in the volatility index means investors are expecting more drops in the market.
On a positive note, major indexes still advanced last week, helping soothe the wounds from the previous week’s losses. In addition, it’s good to remember that occasional pullbacks are a normal function of the equity markets. After a 14-month rally that brought the Dow back over 80% from its March 2009 low, the recent decline has been relatively modest.
Key things to watch this week: Monday – Empire State Manufacturing Survey
Tuesday – Housing Starts, Producer Price Index
Wednesday – Consumer Price Index
Thursday – Jobless Claims, Leading Indicators, Philadelphia Fed Survey
HEADLINES:
An experimental attempt to stop an oil leak in the Gulf of Mexico experienced some limited success over the weekend, BP announced Sunday afternoon. Engineers successfully inserted a tube into the damaged riser pipe from which some of the oil is spewing, capturing “some amounts of oil and gas” before the tube was dislodged, the announcement said.
Retail sales rose in April, the government reported Friday, as consumers continued to show signs of returning to stores. The Commerce Department said total retail sales rose 0.4% to $366.4 billion last month, compared with March's upwardly revised 2.1% increase.
The number of first-time filers for unemployment insurance fell last week for a fourth straight week, according to a weekly government report released Thursday. There were 444,000 initial jobless claims filed in the week ended May 8, down 4,000 from an downwardly revised 448,000 the previous week, according to the Labor Department's weekly report. The number of claims is the lowest since the 442,000 reported in the week ended March 27.
Greek Prime Minister George Papandreou declared he is not ruling out taking legal action against U.S. investment banks for their role in creating the spiraling Greek debt crisis. Both the Greek government and its citizens have blamed international banks for fanning the flames of the debt crisis with comments about Greece's likely default.
Sources: The Wall Street Journal OnlineDow Jones IndexesNed Davis ResearchMarketwatchhttp://www.nytimes.com/2010/05/17/us/17spill.html http://money.cnn.com/2010/05/14/news/economy/april_retail_sales/index.htm http://money.cnn.com/2010/05/13/news/economy/initial_claims/index.htm http://news.yahoo.com/s/ap/20100516/ap_on_bi_ge/eu_greece_financial_crisis The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
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