We mentioned in our last memo how stocks had a positive view of the glass half-full. Last week’s trading action however, focused on a glass that was half-empty. Optimism around the deal struck at the European summit waned as a lack of progress in Europe weighed on Wall Street. The mood further soured when Fitch Ratings Agency announced it’s considering downgrading six nations that use the euro – Belgium, Cyprus, Ireland, Italy, Slovenia, and Spain. Fitch also said it “has concluded that a ‘comprehensive solution’ to the Eurozone crisis is technically and politically beyond reach.” The negativity from across the pond pushed our stock markets lower for the week.
The Dow Jones Industrial Average fell 2.6% to 11,866. The NASDAQ Composite dropped 3.5% to 2,555, and the Standard & Poor’s 500 Index shed 2.8% ending the week at 1,220. These drops came despite a string of better-than-expected numbers.
The latest initial jobless claims report came in at 366k, its best level in more than three years and much better than the 390k that was forecast. The December Empire State Manufacturing Survey improved to 9.5 (its highest reading since May), versus the 3.0 that was expected. The Philadelphia Fed Survey improved to 10.3 in December versus the 4.5 that was expected. Also, the Labor Department reported that consumer prices were flat in November, reassuring investors and building beliefs the Federal Reserve can take additional measures to bolster growth. Normally a positive batch of data like this would send stock prices higher – but these are not normal times.
The markets are not trading on fundamentals right now and haven’t been for quite some time. Fears over the European debt-crisis have resulted in volatile markets where mood swings have relegated economic and fundamental analysis to the back burner (or even out of the kitchen). This situation has made it a very difficult year. While we cannot tell you when this will end, we can tell you that at some point in the future the markets will reflect fundamentals – and European news will not dominate market action forever!
The next two weekends are Christmas and New Years – so we will back with our next memo on January 9, 2012. We wish you all the best over the Holiday Season and in the New Year!
Disclaimer: Data obtained from resources believed to be reliable, but we do not guarantee its accuracy or completeness
