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Home>Daily Capital>Investing & Markets>Market Digest – Week Ending 6/1

Market Digest – Week Ending 6/1

[dropcap]F[/dropcap]ear dominated capital markets. Attention in Europe shifted rapidly from Greece to Spain to the future of the entire European Monetary Union. Pressure mounted on Germany to endorse bolder action such as euro-area bonds or deposit guarantees, but there was no word from Berlin. News in the US was also bleak, as employment numbers disappointed and pending home sales fell. Stocks sank. Treasuries rallied pushing yields to record lows. Gold increased while other commodities fell.

Weekly Returns

S&P 500: 1,278 (-3.0%)

MSCI EAFE: (-3.2%)

U.S. 10-Year Treasury Yield: 1.46% (-0.28%)

Gold: $1,623 (+3.2%)

USD/EUR: $1.243 (-0.6%)

Major Events 

  • Tuesday – U.S. home prices fell 2.6 percent from a year ago, according to the Case-Shiller index. The modest decline was viewed as a sign of stabilization.
  • Wednesday – Pending U.S. home sales fell 5.5 percent, casting doubt on the U.S. housing recovery.
  • Wednesday – The European Commission called for joint Euro-area debt and deposit guarantees, challenging opposition from Germany.
  • Thursday – US GDP for the first quarter was revised downward to 1.9 percent.
  • Thursday – Italian Prime Minister Mario Monti and ECB President Mario Dragi publically pushed Germany for direct Euro-area assistance for banks. Monti also suggested a roadmap to common euro bonds.
  • Friday – U.S. employers added fewer jobs in May than expected and the unemployment rate ticked up to 8.2 percent.
  • Friday – European Economic and Monetary Commissioner Olli Rehn said the Euro area is at significant risk of breaking up.

Our Take

The time to determine the future of Europe has arrived. As expected, capital markets are not waiting for the next Greek election. Whether Greece remains in the Euro or not no longer seems like the main question. Money continues to flow out of weaker European countries into stronger ones and dollar based assets. This will not stop on its own.

Leaders must take bold action one way or another. Continuing to do nothing is probably the costliest decision. Pressure on Germany to allow euro-area bonds or deposit guarantees ratcheted up significantly, even coming from the usually non-partisan ECB. What conditions Germany and her fellow AAA-rated partners would demand in return, or if they will even entertain these ideas, remains to be seen. We should know more in the next couple of weeks. The possibility of the European Monetary Union breaking into several pieces remains a low probability event – but it has become much more real.

Friday’s poor employment report in the US is troubling and suggests America will not be immune to Europe’s problems.

Money has flooded into Treasuries and other “safe” government debt, pushing the 10-Year Treasury yield below 1.5 percent and driving record lows across the yield curve. Bond owners should beware that this tide could reverse just as fast.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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