Monthly Market Archives
October 2011 – Market Update
September provided another exceptional month of volatility in global markets, but as the month draws to an end we see things in much the same light as we did at its beginning. Markets have been put on edge by a number of overhanging risks that largely remain unresolved. Until some level of certainty is attained we expect volatility to remain elevated.
The sovereign debt crisis in Europe is likely the largest risk factor confronting market sentiment at this time. Resolution to the problems in Europe will take time and a large dose of political will. Unfortunately for those countries in the European Union (EU) who did not overspend, they did hitch their monetary wagons to their neighbors who have. Eventually, the Germans will realize that they need to pick up the tab, or suffer a similar fate. The ultimate question is when will the EU take the necessary steps. The answer is most likely when all politically easy options have been exhausted. Hopefully, this political eventuality will not be too far in the future.
Here in the U.S. concerns remain that we may experience a second recession. Recent economic figures have the U.S. economy running at stall speed. These concerns have contributed to pushing equities lower over the past two months where they have bounced up and down, based on the daily flow of news. The combined impact of recession fear and worries about Europe has driven investors into the perceived safety of Treasury securities, resulting in sharply lower yields available for fixed income investors.
Our view on the market is that, although the likelihood of a return to recession has been priced into both equity and debt markets, corporate earnings and balance sheets are as healthy as they have been since the recovery began. Earnings growth forecasts have been tempered, but remain positive and financing is attractive to companies who have opportunities to expand via internal growth and acquisition. Equity prices, by most all measures are historically inexpensive. The broad market, for now, is focused on uncertainty and is largely ignoring attractive long-term opportunities.