Fed Chief Offers a Vigorous Defense
While it remains to be seen if the Federal Reserve bond purchases totaling $2.3 trillion since the end of 2008 have helped or hurt the long-term economy, Fed Chief Ben Bernanke mounted a vigorous defense last week of the Fed’s past policy. In fact, Bernanke pointed out that “It is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the Fed’s decision to greatly expand securities purchases.”
For the most part, there wasn’t anything new said. There were no overt hints that a new stimulus was coming any time soon, but his strong defense of past policy seemed to be just the tone that traders wanted to hear.
For the month of August, the Dow Jones Industrial Average gained 0.6%, the NASDAQ finished up 4.3%, and the Standard & Poor’s 500 rose by 2.0%. As for last week, here’s the chart.
Jobs. They will be a big deal this week.
This Friday’s release of the unemployment rate and nonfarm payrolls could be the trigger for a new round of Fed easing if the numbers disappoint. The economy managed to create 163,000 net new jobs in July. Unfortunately, seasonal quirks may have helped bolster the numbers in July, so we could see some relative weakness in the August numbers that compensate for July’s relative strength.
Upcoming Week
The U.S. data calendar is crammed full of key reports for August: Institute for Supply Management (ISM), vehicle sales, ADP, Challenger layoffs, claims, and the employment report.
In addition, a number of high-profile leadership meetings are scheduled in Europe this week, as Spain continues to prepare to formally ask for aid from the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF), aka “The Troika.” The Troika is also in Greece this week assessing progress on Greece’s budget. France, Germany, Belgium, and most notably, Spain, will hold sovereign debt auctions this week.
Our Thoughts
The Song Remains the Same – Our position remains that the U.S will not see a double dip recession so long as housing does not experience another downturn, and our domestic economy will continue to grow in the most modest of ways. 2012 will probably end up looking a lot like 2010 and 2011, where slightly weakening or sideways markets will give way to improvement over the Fall. Given that a little weakening or sideways action would take place from a +11% YTD number on the S&P 500 suggest to us that the overall YTD return should be much better than people may think.
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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. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(1) West Texas Intermediate crude spot price is as of end of week.
(2) London Bullion Market Association; gold fixing pricing at 3 p.m. London time.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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