Will Asia’s slowdown affect our markets?
Stocks edged higher on Friday after a rough week marked by positive economic news in the U.S. but troubling economic news from Asia. For the week, the S&P and Dow notched their biggest losses of the year, 0.5% and 1.1%, respectively, while the Nasdaq edged up by 0.4%, bolstered by positive earnings in tech stocks.
Despite reports of increased strength in the American jobs market, improved corporate profits, and strong consumer sentiment, some investors feel increasing worry about Asia, Europe, and the impact higher oil prices could have on consumer spending. New reports show that China’s manufacturing sector is slowing due to reduced global demand; in Europe, Ireland slipped back into recession; and oil prices briefly spiked to the highest level in three weeks on Friday, following a report that Iranian oil exports dropped significantly this month.
The markets have posted solid returns in 2012, with the S&P up 11.09% this year. While some data indicates that we are poised for a decline, other data indicates that the markets are likely to move higher. So is it time to pull out of equities and lock in profits? Or is it better to ride things out in hopes the markets will advance further? The short answer is that no one can say for sure.
Stop and consider for a moment – if the market has peaked for the year, it would be the S&P’s cheapest price/earnings ratio in the last 34 market peaks. Furthermore, underlying trends suggest that the global economy is improving, potentially leading to further gains in the latter half of the year. According to a recent report by Ned Davis Research (NDR), a second-half recovery might send markets to levels not seen since 2007.
While it’s only natural to worry about turbulence in the market, it is important to take a deep breath and focus on overall trends and sticking to an active, long-term investment strategy. The media loves to hype stories – that’s how they get ratings. Shrewd investors, on the other hand, understand that markets move up and down, and that buying into the hype can be costly. With the news about weakening economies in Asia, we should probably expect some short-term consolidation, but that doesn’t mean drastic action should be taken.
ECONOMIC CALENDAR:
Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Durable Goods Orders, EIA Petroleum Status Report
Thursday: GDP, Jobless Claims
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment
HEADLINES:
EU task force head is optimistic on Greece. The head of the European Commission’s special task force on Greece believes that Greece is well on its way to improve how it monitors its finances. However, the banking system remains in difficulty and needs to be recapitalized in order to reboot the Greek economy.
Unemployment claims fell to a four-year low last week. Thursday, the Labor Department reported that weekly unemployment benefits dropped by 5,000 to a seasonally-adjusted rate of 348,000, the lowest since February 2008. The drop has coincided with the best three months of hiring since 2010, supporting the view that the job market is improving. From December through February, employers added an average of 245,000 jobs per month.
Gas prices are inching toward record highs, says AAA. Regular unleaded gas averaged $3.84 nationwide, 30 cents higher than one month ago. Drivers in eight states are already paying more than $4.00 per gallon, and prices will likely edge higher this year. Cost per gallon typically peaks in May when refineries switch to summer gasoline blends, which are more vulnerable to price shocks.
New home sales fell in February for the second straight month. The Commerce Department reported Friday that new home sales dropped 1.6% last month to 313,000 homes. Sales have fallen nearly 7% since December, a reminder that the housing market has a long way to go despite some recent gains.
QUOTE OF THE WEEK:
“Doing what you love is the cornerstone of abundance in your life” Dr. Wayne Dyer
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