Quiet Week for Stocks; Gold Declines

in Market Commentary by

Market Digest – Week Ending 2/15

Stocks flat lined. The S&P 500 meandered within a narrow 0.7% trading range for the week, finishing up just 0.1%. President Obama’s State of the Union address proved to be a non-event for capital markets. Eurozone GDP fell 2.3% in the 4th quarter, which was worse than expected. Gold prices declined.

Weekly Returns:

S&P 500: 1,520 (+0.1%)

MSCI ACWI ex-US: (-0.1%)

US 10 Year Treasury Yield: 2.01% (+0.06%)

Gold: $1,609 (-3.6%)

USD/EUR: $1.336 (+0.0%)

Major Events:

  • Monday – Pope Benedict announced he would resign for health reasons.
  • Tuesday – North Korea defied the international community by detonating an atomic weapon at a testing site.
  • Tuesday – Obama gave his State of the Union address. He proposed raising the minimum wage, increasing infrastructure spending, attacking climate change, passing gun control legislation, and providing pre-school for all children.
  • Wednesday – American Airlines and US Airways Group approved an $11 billion merger that will create the world’s largest carrier.
  • Thursday – Fourth quarter Eurozone GDP fell 2.3%, worse than expected. Of particular concern, Italy’s economy contracted by 3.7%.
  • Thursday – Berkshire Hathaway and 3G Capital announced an agreement to purchase Heinz for $23 billion.
  • Friday – G20 finance ministers met in Russia, with a primary goal of finding common ground on currency manipulation.

Our Take:

Europe’s GDP report was a major disappointment. ECB pledges last year to do “whatever it takes” stabilized credit markets, but this will prove temporary if the underlying economies continue to shrink. Italy and Spain are especially subject to social unrest which, if unleashed, would spook bond holders and reignite fear of the Eurozone splintering.

There are valid reasons to be either pessimistic or optimistic. On the negative side, Europe is just now feeling the brunt of austerity measures enacted in 2012. Additionally, the recent rise in the Euro creates challenges for the exporters who drive growth. On the other hand, the US and Chinese economies continue to grow and increasing global demand should create “positive contagion”. Also, capital markets shrugged off the news with little fanfare.

Gold was down 3.6% this week. To some degree, this indicates the capital markets expect an orderly withdrawal from the massive global monetary stimulus measures currently in place. This can only happen if Europe is relatively healthy. Therefore, gold’s drop this week could be looked at as an encouraging sign, but there are many factors impacting gold prices.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as the 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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