Mark Levy’s Economic Update – Friday, March 14, 2014

Yesterday, the stock market decided to react to soft economic news from China and geo political concerns regarding Russia and the Ukraine. The Dow 30 Industrial Average declined 240 points to close at 16,109 and today is trading at 16,133, up 18 points on the day. Some market observers would say that the reasons above are only excuses for the correction of an “over bought” equity market, and maybe they are right. We are certainly overdue for a decline mode that would be a healthy event for future equity price rises. So, with this in mind, our expectations for the next few months is a stock market that consolidates (sideways), or declines, building some necessary negative market sentiment that should help build the base for the next leg up and will hopefully be supported by better economic news we anticipate occurring in the second half of 2014.

 One of the areas we expect good performance from, long term, is Western Europe. At the moment though, this story is mixed. In Germany, if you are 21, you have a job. German youth unemployment is a very low 7.6% and the savings rate there is 10% (U.S. savings is 4%). If you are 21 in Italy however, you cannot get a job – the unemployment rate is a record 43% for those under 25 and in the south of Italy it has soared to over 50%. Italians have a very difficult time getting a loan (Italian banks now have very tight lending standards) or insurance or affording gas (the price per gallon equivalent is around $9.00/Gal).

 What is good about Europe is bond yields have been steadily declining in the last couple of years, signifying improving economic stability. Additionally, European stocks trade at lower valuations to their U.S. counterparts, a forward price-to-earnings (PE) ratio of 13.3, compared to 15.8 for the S&P 500 Index. Inflation is picking up back above 1% and continues to rise. This is good because deflation was a great concern – most western central banks have a stated goal of 2% inflation for economic health. Lastly, loan demand is picking up – a sign that business loans are increasing.

Part of the reason for mixed economic signals in the last few months has been weather, which was cited to have caused utility outages, disrupted supply chains and production schedules, and resulted in a slowing of sales to affected customers. Anyone living back east can attest to the challenges represented by “Old Man Winter”. Once weather returns to normal, the economy is likely poised to accelerate.

 Our online “Account View” continues to be upgraded with better reporting features. These include improvements to the positions and transactions tabs, along with summary totals and change in percent of daily change functions. We encourage clients to access LPL’s “Account View” through our Legacy Wealth Planning Website and consider the “Going Paperless” option.

 As always, call us with any investment questions you may have and thank you for your business. – Mark

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 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. Economic forecasts set forth in this presentation may not develop as predicted. Past performance is no guarantee of future results.   Indexes are unmanaged and cannot be invested into directly.  Referenced material, LPL Financial Weekly Economic Commentary and LPL Financial Weekly Market Commentary, both dated 3/10/2014, along with Don Hayes, dated 3/13/2014.