Or I suppose that I could say “hope replaces fear” as the title. In what was strangely similar to the volatile equity action late last summer, stocks rebounded and turned in their best performance of the year last week after suffering the prior week under the intense pressure of euro debt woes and a disappointing employment report.
Here’s how the market ended up for the week.
There were a number of factors that helped stocks end the week in the green.
First, if you look at last week’s blog, I ended it with “And don’t discount the possibility that European politicians could craft a headline that would provide support in the markets. They’ve done it before.”
Well, once again, the European Union (EU) leaders, including those in Germany, crafted headlines that eased the worry, suggesting bold action might be forthcoming.
Then, over the weekend, Spain requested help and the EU leaders agreed to lend them 100 billion euros (about $125 billion) to aid their banks.
But it wasn’t just the headlines from Europe that sent stocks higher. We also saw an unexpected rate cut by China – the first since 2008. Additionally, there was speculation that that Fed Chief, Ben Bernanke, was prepared to ease, which also lifted spirits. Bernanke did reiterate on Thursday that the Fed is ready to act if financial stresses in Europe escalate and stated that he believes the U.S. economy will expand at a “moderate pace over the coming quarter.”
If the Fed does ease, it’s possible that mortgage rates could decline to 3.25%
I’ve included a chart from the Institute for Supply Management (ISM) for both Manufacturing and Non-Manufacturing (the services sector). Readings above 50 show the economy is growing/expanding. We watch this closely here at Monument. We agree with the Fed Chief that the economy is growing at a slow rate and NOT contracting, although there are signs that the rate of growth is slowing.
I again reiterate that unless your need for short-term liquidity has changed, you should do nothing right now. Please see my last us news and world report column.
Your investment strategy should be born from your financial plan. If your portfolio is so volatile that it is creating anxiety or keeping you up at night, you probably do not have a proper financial plan or it is not indicative of your true tolerance for risk and liquidity.
So, if there is anything to do right now, it is to get that fixed.
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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 Treasure yield is simply the yield at the close of the day.