Stocks endured intense volatility last week. The Dow Jones Industrial Average experienced four consecutive daily 400-point swings for the first time in history and markets moved over 4% on each of those days, marking only the fifth time in the last century that occurred in a single week.

The primary catalysts for the high levels of volatility have been, of course, S&P’s downgrade of US Treasuries and the ongoing sovereign debt crisis in Europe. Over the past couple of weeks, investors have been aggressively “de-risking” as they have been downgrading their outlooks for the future of global economic growth. The broad concerns about the health of the global economy are clearly understandable given that in many parts of the world fiscal stimulus has been largely exhausted and monetary policy rates are already at or near zero. Given this backdrop, many investors are deeply fearful of the possibility that declining markets could exacerbate an already-weak economy via a further weakening in confidence.

Comment (0) Read More...

A review of some of the data provides valuable perspective on the recent extreme market

Comment (0) Read More...

Equities markets dropped last week in the face of continuing gridlock in Washington over debt and deficit issues, some renewed problems for euro-area sovereigns and a very weak gross domestic product report.

The parties in Washington worked through the weekend, and by Sunday night a framework for a deficit and debt deal was reached. As of the time of this writing, the final voting on the deal has not yet occurred, but it is looking like the multi-part agreement will be passed. The debt deal will raise the debt ceiling, will provide a set of spending cuts over the next ten years and would be enough to remove the specter of a US debt default.

Comment (0) Read More...

Our firm has received numerous inquiries regarding our views on a debt default by the United States. We thought we would address this issue in this week's newsletter.

The issues of US fiscal policy, the debt ceiling, default risks and credit downgrades remain front-and-center in investors’ minds. The worsening political gridlock and polarization around these issues has drawn the debt-ceiling-related deadline of August 2 into sharp focus. Virtually every major party in the debates agree that a US debt default is unthinkable since no one wants to take the political hit for the financial chaos a default would cause.

Comment (0) Read More...

Markets have been highly volatile over the past several months and following a couple of weeks of gains, stocks fell again last week.

In addition to heightened levels of unease over the sovereign debt crisis in Europe and escalating noise over the debt ceiling in the United States, market volatility has been driven by uneven economic data. While we remain convinced that the economy is in a recovery mode, it is important to remember that recoveries that occur in the aftermath of financial crises tend to be bumpy and slow. The current recovery is no exception.

Comment (0) Read More...

Economic and market conditions have been uneven so far this year, but, on balance, have been positive. The US and global economies remain in a subpar growth cycle and currently appear to be in a slowdown phase within that cycle. Some of the reasons for the economic soft patch are temporary (the disruptions caused by the disasters in Japan, a spike in oil prices, bad weather) and we are expecting better economic conditions in the second half of 2011.

Markets have faced and continue to face a number of risks. The European sovereign debt crisis continues to cause concern, but as of now a temporary fix has been enacted. The debate over the US debt ceiling is also a source of consternation, but we are expecting a resolution to that issue as well. In any case, market fundamentals continue to remain sound, with revenues, earnings and free cash flow growth all showing signs of strength. For some time now, we have been arguing that the economy would “muddle through” while markets “grind higher.” That has been the case for the first half of the year, and we expect the second half to be just as good, if not better.

Comment (0) Read More...

Stocks again experienced mixed results last week as markets remain stuck in neutral. As we have been saying for several weeks now, while we are expecting to see additional volatility, we view the current period of weakness as a potential buying opportunity.

The Federal Reserve held its regularly scheduled policy meeting last week and, to no one’s surprise, elected to keep interest rates on hold. Looking ahead, we are not expecting to see any near-term changes in the Fed’s position. Given a slow recovery and a subdued inflation outlook we are not expecting to see higher interest rates until at least mid-2012.

Comment (0) Read More...

Uncertainty levels remain high and investors are struggling with a myriad of economic issues. Because clarity levels and conviction are both low, investment sentiment and volatility swings have been magnified in recent weeks. From our perspective, we believe there are a number of issues that warrant concern, but we believe investors should look past the near-term risks and view the current weakness as a potential buying opportunity.

First, on the economic front, the US economy is faced with some significant structural headwinds that have made for a sluggish recovery. Despite the more negative tone of economic data over the past couple of months, we do not believe we are in the midst of anything more serious than a rough patch occurring in the middle of a sustained recovery. As such, we are optimistic that we will see a reacceleration in growth in the second half of 2011.

Comment (0) Read More...

Equity markets have now endured six consecutive weeks of losses and, in some ways, the current correction in markets is reminiscent of the mid-year correction that occurred in 2010. The drivers of this year’s downturn are somewhat similar to those that caused last year’s: a slowdown in manufacturing caused by overproduction; falling demand levels; higher oil prices; and concerns over both European debt issues and Chinese policy tightening.

A key difference between the 2010 correction and what we are seeing now, however, is the degree of the downturn. So far, equity markets have fallen only about half as much as they did last year. This comparison, of course, leads to the question of how much further the current correction will run. In our view, the answer will be largely determined by the degree to which the economy will either accelerate or decelerate, and while the current economic data continues to be weak, we are expecting to see a rebound in the third quarter of this year.

Comment (0) Read More...

A stream of increasingly disappointing economic data helped accelerate the multi-week correction in stocks.

The most recent high-profile evidence pointing to a slowdown in growth came in Friday’s jobs report for May. For the month, total nonfarm payrolls grew at a much lower-than-expected 54,000 (consensus expectations were for over 150,000). Additionally, the unemployment rate unexpectedly rose to 9.1%. In retrospect, a disappointing data set should not have been that surprising given the weaker data we have seen over the past month. There has clearly been a soft patch in economic performance this spring, and as such, the employment growth rate is slowing rather than accelerating. In addition to the weak labor market report, the ISM Manufacturing Index for May dropped sharply and weekly jobless claims have become more elevated.

Comment (0) Read More...