Weekly Market Digest — Week Ending 10/14/11

in Market Commentary by

[dropcap]S[/dropcap]tocks rallied a second straight week, with the S&P 500 up close to 6%. Confidence rose regarding Europe’s ability to stem its sovereign debt crisis and US economic indicators continued to surprise to the upside. A less bleak economic outlook reduced demand for US government bonds and helped push commodity prices up.

Major Events:

  • MondayS&P 500 jumps 3.4% on joint German and French announcement that they will release a plan to deal with Greece, despite offering almost no specific details.
  • Tuesday – Slovakia rejected ratification of Europe’s retooled bailout fund, but said it expects to be able to approve it within the week.
  • Thursday – Google announces a 26% increase in Q3 earnings, exceeding expectations.
  • Thursday – Former billionaire hedge fund manager Rajarantam is sentenced to 11 years for insider trading.
  • FridayUS retail sales results for September show a 1.1% gain – beating expectations.
  • All Week – “Occupy Wall Street” protests continued nationwide, but move no closer to formalizing an agenda.

Our Take:

As we expected, markets cheered a move toward real resolution in the Greek situation. What makes the talk of the last two weeks different than previous rhetoric is that it is finally based on reality. Reality in this case being Greece will have to default and private investors will have to take losses. It is telling that reports on Friday of haircuts up to 50% for Greek debt holders failed to dampen the rally in stocks and may have actually fueled it.

Meanwhile, in the US, consensus view is rapidly shifting from certain double-dip recession to moderate growth. September retail sales and early earnings reports have been generally positive.

While it is way too early to be certain of a rosy outcome for Europe or the US, the level of fear embedded in asset values (other than bonds) has left significant upside potential should we simply avert disaster.

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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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