May 25, 201204:00 PMBlog: Alaska's Eye on Wall Street
Week in Review: May 25
According to ISI Strategies: The global capital markets are convinced that the EU debt crisis will get worse before getting better. The weakness in equity prices in May (S&P 500 down -5.74%) is not due to short term growth fears as U.S. economic releases were better than expected. Rather the upcoming EU summit fell short of expectations and followed a disappointing G-8 summit last week. The euro fell like a stone and is at the lowest level since July 2010. WTI crude oil prices cracked below $90 per barrel (briefly) and Treasury bond prices rallied.
For the week, the S&P 500 was up +1.77% and now sits at 1318 (it is up +5.70% YTD). Facebook ended the week at $32, compared to its $38 IPO price last Friday. Europe's Stoxx 600 was flat for the week and -2.40% YTD. Meanwhile Treasury bond yields are bouncing around all-time lows (10 year at 1.74%).
Economists warned that Germany must accept higher domestic inflation to get Europe out of its financial crisis. A +4.3% wage increase negotiated by Germany's biggest union, IG Metall, is seen as a sign that Chancellor Angela Merkel's government is willing to accept inflation of 4% or higher. The Greek elections are on June 17; probably no major EU breakthroughs until then.
This from Baird: France is loaded with companies that have 49 workers. That is because once a company has 50 workers it must create three workers councils, introduce profit sharing and must submit restructuring plans to those councils if it wants to trim the workforce. It is not unusual for a businessman to set up many companies in order to avoid those rules. Could this be part of Europe's problem? Ya think?
The CBO says that a combination of tax increases and spending cuts - the fiscal cliff - would sharply reduce the U.S. budget deficit but contract the economy at a -1.3% growth in the first 6 months of 2013 (a recession) and by -0.5% over the year. Just 221 days until the Fiscal Cliff.
Quote of the week: It seems to me that anyone in the active management business ought to be able to defend the process of active management with more than a sales pitch - y'know, with data and stuff. (Bob Seawright)
It's a big week for economic data. Case-Shiller housing price data and consumer confidence (expect up slightly) next Tuesday. On Thursday, Q1 GDP will probably be revised down from +2.2% to +1.8%. Then Friday we get monthly employment expected to be up 150,000 (ok - not great) and the unemployment rate should be unchanged at 8.1%. Personal income and ISM manufacturing (recently a bright spot) - should be down slightly but still expanding.
The markets are closed of course this Monday, Memorial Day - a time to remember the bravery and sacrifices of men and women who gave their lives for this great country.