The Most Important Weeks of the Year for Your Money
For the past couple of weeks, I’ve been writing to you about the critical stage the equity markets are in right now. How things play out over the next several weeks will determine what takes place during the second half of 2012, so it behooves us all to make sure we know precisely what’s going on. As I mentioned in my first two letters, there are five key issues to watch going forward.
Last week, stocks enjoyed a big surge, with the Dow jumping 3.59% and the S&P 500 adding 3.73%. The NASDAQ Composite was the biggest winner among the three majors, surging 4.04% on the week. It was by far the best week of the year for the markets, but keep in mind that during the month prior, stocks had been trending lower. That means the market was a like a dry sponge just waiting to soak up any drop of good news.
Hope for a bailout of Spanish banks helped fuel the rally on Friday, while Wednesday’s surge was caused by hope that Fed Chairman Bernanke would open up the money spigot yet again and start printing more cash. Then there was the hope that China’s interest rate cut would keep their economy from what many are already claiming is a hard landing. Basically, last week’s rally was a case of hope, hope—and more hope.
The following is a brief summary of last week’s market moving events. For a complete update, along with your roadmap to navigating the crisis, listen to today’s new Monday Morning Market Update audio podcast.
1) Economic data continues to be negative. The latest data from China shows the second-largest economy in the world is slowing dramatically. China’s inflation, industrial output and retail sales all slowed in May for the second straight month, and the sluggish growth prompted policymakers to cut interest rates by a quarter percentage point. The move was the first of its kind by the country since they cut rates during the financial crisis, and it shows that policymakers are very worried about the rate of economic growth.
2) Greece on hold until election. The fate of Greece and its continued existence as a member of the European Union will be determined to a large extent on Sunday, when citizens go to the voting booths to decide their nation’s political fate. There’s a news blackout on polling in Greece until after the election, so this issue will just remain in the wings until next Monday, when markets first get to digest the news.
3) Spanish bank bailout. The big news over the weekend is the supposed sweetheart deal Spanish banks are going to receive, which is basically a 100 billion euro handout with very little concessions to meet in order to get the money. The markets rallied on Friday in anticipation of this bailout, and early Monday stocks were higher on the news. However, enthusiasm for the deal quickly waned, as the markets realized that nothing of any substance will change because of this bailout. In fact, this may be just one of many Spanish bailout that need to be implemented before it’s all said and done.
4) Big Ben ready to stimulate. The Federal Reserve chairman was on Capitol Hill last week telling lawmakers that the Fed is there should the markets require monetary intervention. But Ben didn’t take any real action, and with 10-Year Treasury note yield now below 1.6%, and with markets rallying strong last week, I think the chances the Fed will act at its June meeting are almost zero.
5) Market technicals. After falling below the 200-day moving average in early June, the market rally last week brought stocks back above their long-term trend line. This was likely a short-term low for U.S. equities, but what happens next is what we’re all watching like a hawk.
In light of the unknowns operating in the economy and financial markets right now, as well as the bevy of potential threats out there to your investment portfolio, this is definitely the time to get your risk-management plan together. Our weekly audio podcast can help you do just that, as it provides you a front-row seat to all of the events that can affect your wealth.
Simply click here to listen to today’s show, and get prepared to deal with what could be the most important weeks of the year.
Doug Fabian, President
Fabian Wealth Strategies