In providing this update on the financial markets, Lowe Wealth Advisors is particularly aware of the differences in domestic versus international concerns. Following are our primary global focal points at this time.
It is quite apparent that European voters are sending a message of their intent to replace pro-austerity administrations with those who favor softer austerity approaches. The French election resulted in the incumbent, Nicolas Sarkozy, being defeated by Francois Hollande. In Greece, voters solidly rejected the two incumbent parties.
Unemployment and recession are spreading amidst significant spending cuts across the euro-zone. The voters seem to be questioning such severe cuts in an economic downturn.
The voters’ mood is not surprising to Lowe Wealth Advisors as we have previously stated that the euro-zone crisis is far from over. As of this writing, the domestic stock market has shrugged off the votes in France and Greece. We believe that these votes were already priced into the markets based on the losses of Friday, March 4, 2012.
We are concerned about what is not currently priced into the markets and how that may shape future actions. An initial showdown between Germany and France is already set for next Tuesday with a meeting between Hollande and Merkle, and the direction of the euro-zone is not likely to be decided anytime soon.
Whether the markets would deem cuts to austerity measures as a possible economic stimulant or if they would view the cuts as a weakening of the euro-zone financial situation remains to be seen and will play out throughout 2012.
Our strategic decision to limit any exposure to the euro-zone in all of our actively managed allocations remains in place for the foreseeable future.
China, Brazil and India
Recent data suggests that the Chinese economy is continuing to slow. Brazil also continues to struggle with slow growth and India is challenged with inflationary issues. In our opinion, China will be the major driver of commodities in 2012. If their economy strengthens and consumption increases, commodities (natural resources) will have the potential to be impacted. If China remains weak, it is possible that commodities could struggle. (Commodities are a volatile asset class and not appropriate for every investor.)
The United States of America
The employment report for April left us less optimistic than we have been recently regarding job creation. While we believe that the April numbers could be revised upward, as we saw with the March data, pressures on job creation are evident.
For our recovery to continue we believe that housing will have to play a more critical role. Consumer spending remains the key to continued domestic economic growth in the near-term. Personal consumption could see a boost in June as the summer vacation season kicks in – a time when consumers usually begin to spend more.
However, we must pay close attention to the lackluster job numbers and recognize that our domestic growth could be hampered by an economy that is not producing adequate new jobs.
At the time of this writing the Dow is sitting at 13,000 (Source: Wall Street Journal Online.) With the overall global environment being what it is, we believe there could be more potential downside risk vs. potential upside gains for the equity markets (in the near-term).
With the markets at their current levels we must ask, “What news or events could drive them higher?” Lowe Wealth Advisors believes that for the Dow to potentially approach the 14,000 or 15,000 level a meaningful solution to Europe’s status and signs of a growing economy in China would be required. Absent these conditions we do not believe that the domestic economic strength alone could be adequate to drive the markets to these levels. (This is not meant to be predictive of market performance and even if the conditions arise that we believe would be favorable, the equity markets may not respond as we would like to see.)
Lowe Wealth Advisors remains consistent in our view that in the near-term stronger growth potential may exist domestically vs. overseas. Our focus will remain on dividend paying equities and a broadly diversified approach.
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 (www.adviserinfo.sec.gov).
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.
- 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.