Will the US Economy outweigh global concerns?
It was a rough one for the stock market last week as major indices closed out their worst session of 2012 on the back of disappointing economic growth in China and renewed fears about debt-ridden Europe. The S&P fell 2% for the week, while the Dow lost 1.61%, and the Nasdaq closed down 2.25%.
China, the world’s second-largest economy, reported first-quarter growth figures of 8.1%, the weakest rate in nearly three years, and below expectations of 8.3%. Stocks fell sharply on the news, stoking fears that a weakened Chinese economy could have global implications. Concerns surrounding Spain’s debt offering next week renewed fears about the European debt crisis, battering bank stocks and dragging down the euro against the dollar.
On the other hand, domestic indicators continue to provide a positive contrast to global worries. The most recent Beige Book report released by the Federal Reserve shows that the U.S. economy is improving at a "modest to moderate" pace as solid auto sales, warm weather, and growth in high-tech manufacturing outweighed the effect of high gasoline prices. Sales by U.S. wholesalers rose 1.2% in February, and they restocked their inventories at a faster rate in February than January, suggesting they expect a strong spring. Consumer confidence likewise grew in February by the most in seven months. This is especially good news since consumer spending drives nearly 70% of domestic economic activity; if consumers keep spending, the economy will continue to improve.
Domestically, the U.S. economy really seems to be chugging along, and indicators continue to support a broad recovery. Nevertheless, concerns about the fragile global economy will likely lead to continued volatility in equity markets. The declines experienced over the last two weeks are not difficult to comprehend in light of the outstanding first quarter performance we experienced. In the weeks ahead, analysts will be examining quarterly earnings reports to determine whether the pullback has been exhausted, or if we should expect continued profit taking.
As always, when short-term declines test your resolve, it is critically important to remain focused on your long term objectives and trust that the portfolio strategy you have in place can weather a few squalls.
ECONOMIC CALENDAR:
Monday: Retail Sales, Empire State Mfg Survey, Treasury International Capital, Business Inventories, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims, Existing Home Sales, Philadelphia Fed Survey
HEADLINES:
Five years after the U.S. housing bust sent sales and prices plunging, the spring home-buying season is pointing to a long-awaited recovery. Reduced prices, record-low mortgage rates, higher rents, and an improving job market appear to be emboldening many would-be buyers. Earnings reports Friday from two big banks suggested that more people are taking out mortgages. JPMorgan Chase issued 6% more mortgages from January through March than it did a year ago and recived 33% more applications. Wells Fargo issued 54% more mortgages and received 84% more applications.
Oil prices fall on signs of weaker economic growth. Oil slipped below $103 per barrel on news of softening global demand. If the Chinese economy is slowing down, demand for oil could weaken since Chinese industries are one of the primary consumers of petroleum.
Small business confidence dropped sharply in March, indicating that small business owners might be feeling the pinch of high gas prices. According to the report, many entrepreneurs plan on raising prices this year in response to higher energy costs.
Gasoline prices may have already peaked in the U.S. Despite predictions that gas prices would continue their skyward march, the average price of gas nationwide has fallen to $3.90, down 3 cents from a week ago, indicating that the peak might be behind us.
QUOTE OF THE WEEK:
“There is no path to success; success is an inner attitude that you bring to your endeavors.” Dr. Wayne Dyer
HEALTH TIP OF THE WEEK:
Fight Spring Colds with Ginger
Ginger’s oils have long made it useful as an herbal remedy for the nasal and chest congestion caused by the common cold. To use: Pour two cups of boiling water over a 1-inch piece of peeled, chopped ginger; steep the concoction for 10 minutes and strain. Add a pinch or two of cayenne powder and drink as needed for relief.
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