Market Notes August 3, 2012

As we move into August the global financial markets continue to seek some degree of certainty. The primary contributing factors at this time are from the European debt crisis, the U.S. tax picture with the impending ”Fiscal Cliff”, the U.S. economic recovery, and of course, the U.S. political practices.

We have found that in election years, our clients often ask us if it is better to have a Democrat or Republican in the White House for the potential positive performance of the stock market. They also ask us the same question regarding the control of Congress and its influence on the financial environment.

The reality, in our opinion, is that the end result of the Presidential election and the accompanying political preferences are really less important than the fact that a conclusion for decisions occurs. Uncertainty and unpredictability are not friends of the markets. Solid decisions from our political leaders are vital.

Businesses may be hesitant to hire and commit capital in an uncertain tax and regulatory environment. The same holds true for investors throughout the world who seek to fully understand the playing field before they are willing to place capital at risk.

Can any degree of certainty or predictability be expected? Perhaps, but it will be slow to evolve over the next few months. For the first time in recent memory, on Wednesday, August 1, 2012, the House showed a willingness to address the tax uncertainty concerns – at least temporarily. This signals that there is the potential for Congress to act sooner than later and that the fears of a “Fiscal Cliff” in January 2013 may not materialize or could be less than anticipated.

Considering European and U.S. economies both the European Central Bank (ECB) and the Federal Reserve have elevated investor expectations that action will be taken to ensure continued economic growth via financial market activities. Now they must deliver on the expectations they have built and investors are going to be looking for substantive action. The recent rally in the domestic markets was fueled by the promise of the ECB to “take whatever action is necessary.”

Lowe Wealth Advisors believes that the markets have already assumed that favorable action will be taken. Weak, indecisive or incomplete measures could put the markets at risk. The markets have adopted the view that “hope springs eternal,” but we must recognize that the historical pattern for financial stability has been to have rising markets on the promise of action and declines with the reality of inaction.

One area of strength for the U.S. economic recovery is improvement in the consumer savings rate. Why is the rate of savings important? It simply means that consumers may have a greater ability to spend when they feel comfortable doing so. If (and this is a big if) we see a surge in consumer spending, corporate profits could be boosted and the economic recovery could get a shot in the arm.

Today, as we write there is an additional bright spot in the domestic economic news. According to the Wall Street Journal U.S. stocks hit a 3 month high after a positive report on domestic job growth. We view the positive response from the equity markets as an encouraging sign. Could the jobs numbers offset a scenario where the Federal Reserve takes action less than what the markets believe will occur? The action of today shows that it certainly is a possibility.

However, in-spite-of the improving consumer savings and good jobs number today the majority of the domestic data points to a weakening economic recovery. Given the overall circumstances we could make an equally compelling argument that the markets could struggle and result in volatility in the near-term.

Based on the recent statements from the Fed and the continuing stream of weakening economic data, Lowe Wealth Advisors believes that the Fed could favor a new direction and take action by the end of August. Exactly what that action might be as well as its impact remains tentative.

This leaves us with the hope that the components of the uncertainty will be gradually eliminated and a period of economic stability will occur. In the meantime, we must remain aware that the markets could cycle higher just as easily as they could cycle lower.

For us, this means holding a patient, highly diversified and cautious approach for the majority of our actively managed portfolio strategies. As the uncertainty decreases it’s possible that we may be more willing to raise the level of risk in our strategies, but for now, we believe our current approach is prudent. We do recognize that a highly diversified approach inherently means that our allocations could lag in a strong equity rally. For the short-term, however, our focus remains on reducing potential market volatility and preserving capital.

If we begin to see signs that the market may be in a bottoming process, and that the risk factors are decreasing, Lowe Wealth Advisors will begin to shift back toward a more growth-oriented focus. We would not be surprised to see a shift toward more potential growth in the coming months but we would do so in a cautious and deliberate manner.

Lowe Wealth Advisors is an SEC registered investment adviser with its principal place of business in the State of Maryland. Lowe Wealth Advisors and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which Lowe Wealth Advisors maintain clients. Lowe Wealth Advisors may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of Lowe Wealth Advisors, please contact Lowe Wealth Advisors, or refer to the Investment Adviser Public Disclosure web site (

This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice.

Important Disclosures

  • Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
  • No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
  • An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.

*Lowe Wealth Advisors is a registered investment advisor.