Mark Levy’s Economic Update – Monday, July 8, 2013
These are interesting times. Gold has been falling along with bond prices of late. Foreign markets have been volatile and the US equity markets, after a short lived correction, seem to be rising again (for the moment). Choppiness is expected during the second half of 2013, but the longer term view we have been espousing of a continuing bull market in equity prices, is intact.
Europe, on a relative basis, is showing some improvement, with Eurozone manufacturing purchasing managers’ index showing signs of bottoming out.
Corporate earnings season is getting started with Aluminum giant, Alcoa, reporting after the market close today. In general, expectations are low because companies have been scaling back their earnings forecasts for weeks as part of a quarterly cat-and-mouse game with financial analysts. It is not ok just to report a strong second quarter profit – they also need to beat analysts’ forecasts and companies are eager to do just that. In these times, companies have gotten very good at managing costs and generating profits, but pressure has been rising for corporations to at some point increase revenue, not just the bottom line.
One area of current concern is the recent rise in oil prices. The Egyptian military just removed the recently elected president from power and it is difficult to know what the future holds for this country. As you know, Egypt controls the Suez Canal and the Suez-Mediterranean Pipeline, through which travels millions of barrels of oil from the Red Sea that are shipped each day destined for Europe and North America. The rise in gas prices can affect what Americans are spending on other products and therefore potentially slow economic growth.
Bonds and bond funds have been in a swoon since Bernanke suggested the Fed may consider tapering its quantitative easing in the near future. You may have noticed that the 10 year Treasury bond rates and home mortgage rates have risen quite a bit in the last few months. The reason for this rhetoric about the Fed and interest rates is the fact that the economy is improving. The hope is that unemployment will improve from the current depressing state and the average person in the Millennial (aged 18 – 34) generation will be able to get a decent job and move out of their parent’s basement! We do not know day to day how this plays out, but the stock market is telling us to be optimistic about our future.
We hope summer is treating you well. Do not hesitate to contact us for any investment questions you may have. – 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. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 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.” References: LPL Financial Weekly Economic and Weekly Market Commentary dated July 1, 2013, Don Hays Financial Commentary and Touchstone Investment Comments June 28, 2013.