Permanent Value

Weekly Update: April 26- 30, 2010

Michael La Salle
April 30th, 2010

Stocks Down as Fears over Greece Get Worse

Stocks ended in negative territory for the week, making it the worst week in the market since late January.  Despite the rough week, stocks closed higher for April, extending the monthly winning streak to three months.  The S&P 500 dropped 2.51% and the Dow Jones Industrial Average fell 1.75% on the week.

In economic news, the University of Michigan’s consumer sentiment index fell for the month of April as the index was down 1.4 points from the reading of 73.6 in March.  Gross Domestic Product also disappointed this week as the real GDP grew at a rate of 3.2% over the first quarter, coming in lower than economists’ estimates of 3.4% quarter over quarter.

In earnings news, upside surprises dominated the news this week as Dow Jones Chemical, Caterpillar, Inc., and Jacobs Engineering Group, Inc. all posted better than expected earnings.  Wynn Resorts also surprised as the U.S. casino company posted earnings of 26 cents per share, coming in 85.71% higher than the expected 14 cents per share.

What opportunities are ahead?

The main question looming over the global economy now seems to be centered on the European Union.  With Greece’s debt problems now in plain view, investors now fear that Greece is just the first domino in line to fall in the European Union.

Greece has spent money liberally for many years, and has run up a national debt of about 115% of the country’s gross domestic product.  Now facing bankruptcy, Greece announced on Friday extreme spending cuts along with large scale tax increases to prove to the rest of the European Union and the International Monetary Fund that it is deserving of a bail out.  But it may be too little too late.  A recent poll of Germans showed that 57% were against bailing out Greece.

The question now in investors’ eyes is, who is next?  This week alone, Portugal, Spain, and Italy have all been dragged into the limelight as possible candidates to be in need of a financial bailout.

Italy in particular has a debt that is higher than Greece, and it looks to be getting worse.  It is projected that Italy’s debt will be at 123.5% of G.D.P. in 2011, and up to 128.5% of G.D.P. in 2014.  Being a larger economy, seventh largest in the world, makes Italy the biggest threat to the eurozone as it makes up approximately 25% of European Union debt.

With problems appearing to be extending out from the relatively small economy of Greece to the much larger economies’ of Europe, this makes a very bleak outlook for Europe.  Investors will continue to pull money out of European countries, putting downward pressure on markets in Europe as well as the Euro currency.

Market Returns

  This Week Year to Date Last Year Last 5 Years
S&P 500 -2.51% 6.42% 35.96% 2.58%
Dow Jones Industrial Average -1.75% 5.57% 34.78% 8.01%

 

Next Week’s Economic Releases

May 4 – Pending Home Sales Index

May 6 – Jobless Claims

May 7 – Employment Situation