THE MARKETS
"The economy is still struggling; too many Americans are still
out of work; and the Nation's long-term fiscal trajectory is
unsustainable, threatening future prosperity," according to the
Mid-Session Review submitted by the White House last week.
This supplemental update of the annual budget contained a number
of projections that are of interest to us. Here are a few:
- A projected federal deficit of $2.9 trillion over the next two
fiscal years.
- Gross Domestic Product projected to grow 3.2% this year, 3.6%
in 2011, and 4.2% in 2012.
- Unemployment projected to average 9.7% this year, 9.0% in 2011,
and 8.1% in 2012. It is projected to stay above 6% until 2015.
- The consumer price index projected to rise 1.6% this year, 1.3%
next year, and 1.8% in 2012.
- The 10-year Treasury projected to yield on average 3.5% in
2010, 4.0% in 2011, and 4.6% in 2012.
Projections like this are, of course, notoriously difficult to
get right. So much can happen in a short period and throw off the
best laid plans. But, looking at the projections at least gives us
a place to start. Overall, the projections are a mixed bag. The
deficit numbers are problematic. The GDP growth projection is good
if we can hit it. The unemployment numbers are painful. The
inflation outlook is stable and the Treasury yield is favorable for
business growth.
If, by the end of 2012, the above numbers come to fruition, then
we would likely avoid a double-dip recession and the economy would
probably "muddle along." So far, corporate America is doing its
part by showing really solid earnings for the second quarter.
Companies such as Caterpillar, 3M, AT&T, and UPS notched solid
quarters and suggest there is underlying strength in the economy,
according to MarketWatch. In fact, of the 175 companies in the
S&P 500 that have already reported their second quarter
earnings, a whopping 78% have beaten analysts' estimates while only
12% missed, according to data from Thomson Reuters as reported by
MarketWatch. Buoyed by good earnings and relief over the European
bank stress tests, the S&P 500 rose a solid 3.6% last week.
Given all the volatility we've had over the past 2½ years,
"muddle along" might not be so bad!
|
Data as of 3/12/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
3.6%
|
-1.1%
|
12.6%
|
-10.6%
|
-2.1%
|
-2.8%
|
|
DJ Global ex US
(Foreign Stocks)
|
1.9
|
-4.8
|
10.1
|
-11.9
|
2.2.
|
0.8
|
|
10-year Treasury Note
(Yield Only)
|
3.0
|
N/A
|
3.7
|
5.0
|
4.3
|
6.0
|
|
Gold
(per ounce)
|
0.1
|
7.8
|
25.3
|
20.4
|
22.9
|
15.6
|
|
DJ-UBS Commodity Index
|
1.8
|
-6.7
|
5.5
|
-8.6
|
-3.6
|
2.7
|
|
DJ Equity All REIT TR Index
|
6.3
|
13.5
|
56.1
|
-6.1
|
0.9
|
10.5
|
| Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS
Commodity Index returns exclude reinvested dividends (gold does not
pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time
periods.Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association.Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable or not available. |
WHETHER AN INVESTOR LEANS BULLISH OR BEARISH,
there is ample data to support either view. This situation may
explain why Fed Chairman Ben Bernanke told Congress last week that
the economic outlook was "unusually uncertain." For those investors
who lean bullish, here are several supporting points courtesy of
economist David Rosenberg as reported by Financial
Times:
- Congress extended jobless benefits, which is one form of
stimulus.
- Some Democrats are now in favor of delaying tax hikes.
- China is having some success slowing its property bubble
without bursting it.
- Confidence is growing that the emerging markets may keep world
growth positive even if more mature countries slow down.
- Eurozone debt and money markets have settled down after the
problems with Greece sparked default fears.
- The European bank stress tests contained no major surprises and
added clarity to the soundness of the banking system.
- Consumer credit delinquency rates in the U.S. are
improving.
- Mortgage delinquencies in California, one of the hardest hit
real estate markets, are at a three-year low.
- The BP oil spill is coming under control and is no longer each
day's top headline.
- The passage of the financial regulation bill removed one more
cloud of uncertainty.
- Corporate America is reporting solid earnings for the second
quarter and their future outlook has been, on balance,
positive.
- Fed Chairman Ben Bernanke indicated he'll keep using monetary
policy to stimulate the economy and he'll get even more aggressive
if need be.
So, yes, there are reasons why the markets and the economy could
do okay in the months to come. But, in this "unusually uncertain"
time, it still makes sense to be "on guard."
For your convenience the sources
have been listed below:
http://www.whitehouse.gov/omb/assets/fy2011_msr/11msr.pdf
http://www.reuters.com/article/idUSTRE66L0KW20100723
http://www.marketwatch.com/story/us-stocks-sprint-higher-o...
http://www.marketwatch.com/story/us-stocks-upbeat-on-earn...
http://federalreserve.gov/newsevents/testimony/bernanke20100...
http://ftalphaville.ft.com/blog/2010/07/23/296721/rosenbergs...
http://www.values.com/inspirational-quote/3688-Martin-Luth...
