Stocks See Small Gains; Draghi Positive about Eurozone

in Market Commentary by

Market Digest – Week Ending 1/11

Stocks managed small gains in a slow news week. International equities continued to outperform as ECB President Mario Draghi said the European economy was improving. Treasuries regained some of their losses from the first week of the year.

Weekly Returns:

S&P 500: 1,472 (+0.4%)

MSCI ACWI ex-US: (+0.6%)

US 10 Year Treasury Yield: 1.86% (-0.04%)

Gold: $1,662 (+0.4%)

USD/EUR: $1.334 (+2.1%)

Major Events:

  • Monday – Ten major banks agreed to an $8.5 billion settlement related to improper foreclosures.
  • Tuesday – Alcoa kicked off earnings season on a positive note, exceeding profit expectations.
  • Tuesday –Ailing Venezuelan President Chavez announced he will delay being sworn in as he fights cancer, creating uncertainty on who should govern the country.
  • Wednesday – Vice President Biden said President Obama is weighing executive action to stem gun violence.
  • Thursday – China’s trade surplus rose to $31.6 billion, ahead of expectations.
  • Thursday – ECB President Draghi said “a gradual recovery should start” later this year for Eurozone. The Euro rose.
  • Thursday – Nokia’s CEO said demand for its Lumina smartphone was strong, providing hope for the battered company and sending shares up over 18%.
  • Friday – Wells Fargo announced profit rose 24% but disappointed investors with a smaller than expected net interest margin.
  • Friday – The FAA announced it would conduct a comprehensive safety review of the Boeing 787, but reiterated it is safe to fly.

Our Take:

It was a quiet week in the capital markets, but behind the scenes $18 billion flowed into stock mutual funds and ETFs, according to Bank of America. By comparison, the biggest week in 2012 was $11.4 billion and the net for the entire year was just $3 billion. There is a mountain of cash held on the sidelines by antsy investors. One week does not make a trend, but if the US stock market can sustain momentum, it could create a self-fulfilling prophecy powerful enough to quickly drive stocks past the all-time highs reached in 2007. The S&P 500 currently sits about 7% below its high-water mark.

Quietly, the international markets are doing even better. The Euro was up about two percent this week, largely due to comments from ECB President Mario Draghi. He spoke of a “positive contagion” lifting the Eurozone out of recession. This means Mr. Draghi believes the rest of the world is doing well and gaining momentum. He is a very credible source.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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