• Investing & Markets

Weekly Market Digest — Week Ending 9/30

September 30, 2011 | Craig Birk, CFP®

Friday marked the end of a dour quarter for global equity markets. The S&P 500 dropped nearly 15%, with international markets declining over 20% in dollar terms. For the week, markets had no firm direction, rising and falling on rumor and speculation about a European bailout plan for Greece. No significant policy was announced, but the German Parliament did open the door to expanded funding for the “European Financial Stability Fund.” U.S. economic reports were mixed. Q2 GDP growth was revised up to 1.3% and jobless applications dropped, but so did personal income.

Major Events:

  • Wednesday – Amazon announced its new tablet, potentially a threat to Apple’s iPad.
  • Thursday – German Parliament approved a bill which could allow them to contribute about $100 billion more to the EFSF and to allow the EFSF to extend credit lines to banks and buy bonds on the secondary market.
  • Thursday – US GDP for Q2 was revised up to 1.3%, ahead of expectations.
  • Friday – Eurozone inflation for September was reported at 3%, above expectations.

Our Take:

Media focus revolves around Greece, but Greece is really acting as a smell test for the bigger at-risk economies of Spain and Italy. While not much concrete happened during the week other than the German Parliament vote, rhetoric out of European governments confirmed that they finally get the severity of the sovereign debt issues and that the breakup of the Eurozone is not a viable option. This is good news, but the reality is markets can move faster than governments, especially coalitions of governments, so the future is nearly impossible to predict.

Despite all the scary news, the US economy continues to show mixed results and most companies continue to grow. The one scenario no one is talking about is a big rally in equities – which in our mind makes it a fairly likely outcome. The next quarter should be very interesting.

On the fixed income side, we shortened the duration of the bond portion of portfolios for our investment management clients. While bond prices may continue to rise if fear over Europe persists, we see the downside potential in longer duration bonds as too great to bear for such small yields. Investors who are still holding long duration Treasuries should be cautious.

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