Mark Levy’s Economic Update – Tuesday, May 2, 2012 Zacks, a well known research house and money manager released this update on corporate earnings for this quarter: “The first quarter earnings season has turned out to be much stronger relative to pre-season expectations. For the 60% of the companies that have already reported, total earnings growth is tracking 9.4% with roughly 71% coming out with positive surprises. Most of the growth is coming through revenue gains, with aggregate margins essentially flat from the year-earlier levels. This is a far cry from pre-season expectations, when earnings were expected to be down modestly from the year-earlier period.” That, along with the US stock market trading today at 13,268 (Dow Ind. Ave.), is the good news. The worrisome news is again related to Europe. Yesterday, Spain joined a growing list of European countries that have entered recession as its economy contracted for the second consecutive quarter. A spreading recession, a consequence of austerity measures, may challenge Europe’s commitment to debt reduction and raise political risk for investors. Political change has raised the risk that European governments may back away from commitments to budget deficit reduction measures that are crucial to alleviate high debt burdens. This week the ECB (European Central Bank) takes center stage as the political antidote to rising anti-austerity sentiment. The ECB could ease debt fears in a number of ways such as injecting more cash into the financial system and resuming government bond purchases. They could also cut interest rates or at least talk about the possibility of cutting interest rates. LPL Financial research thinks the latter is possible as the ECB in the past has waited until its hand is forced before they act. Another economy of interest is China. They are expected to grow at 8.2% this year and 8.8% next year, and the consensus view is that China can achieve a soft landing in 2012 and 2013. But China has clearly moved into a new phase of its economic growth trajectory after GDP (Gross Domestic Product) growth surged over the past 10 years. Looking ahead, markets and global policy makers need to adjust to Chinese GDP growth of around 7.5% rather than the 11-12% growth seen in much of the 2000s. So, despite good earnings reports, we believe a digestive phase for equity markets is possible in the near future. Europe and a slowing Chinese economy along with other concerns may have the effect of rebuilding the “wall of worry” bull markets climb. Further out, we do believe the bull market will continue and make higher highs and we at Legacy Wealth Planning are always looking for investments that attempt to participate in these markets in a suitable fashion for our clients. – Mark 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. The Dow Jones Industrial Average is an unmanaged index and cannot be invested into directly. Past performance is no guarantee of future results. LPL Financial Weekly Economic Commentary, LPL Financial Weekly Market Commentary and Don Hays Investment Newsletter, all dated 4/2/2012. LPL Financial Bond Market Perspective dated 5/1/12.