3 Stories in the global economy that should not go un-noticed
Fed officials went into a full-court communications press as markets wobbled on fears the Fed might begin shuttering its bond-buying program. To counter these worries, Fed officials stressed that there is no rush to exit and that the program is not on “autopilot;” rather, bond purchases will be scaled up or down as future conditions warrant.
While markets reacted poorly to the Fed’s news, economic data last week was generally positive. Stocks entered the holiday weekend down on worries that the Fed might cut back its quantitative easing. For the week, the S&P 500 dropped 1.07%, the Dow lost 0.33%, and the Nasdaq lost 1.14%.
Here are the 3 stories this week that rose above the noise:
Home Prices Accelerate by Most in 7 Years
Markets opened for trading on Tuesday well over 1 percent as news of a jump in home prices fueled buying. The S&P/Case Shiller Index, which tracks 20 metropolitan areas, climbed 10.9 percent, the biggest increase in seven years. Prices also gained 1.1 percent over last month’s report, which tracked March prices. Lower inventories and growing demand are causing higher prices. While many remain worried about fiscal tightening in Washington, the jump in home prices and surge in consumer confidence reveal a resilient economy.
Defending the Bull
Some analysts and market prognosticators are becoming skeptical over the sustainability of the current bull market, following the first weekly decline in the S&P 500 in five weeks. U.S. equities could very well be entering a market correction following a 16.6 percent increase since the start of the year for the S&P 500, but there are a lot of reasons for optimism both short- and long-term for U.S. equities.
As an article in Barron’s recently stated, “Private employment is up. Public spending is down. The deficit is shrinking. Companies are flush with cash. Housing has begun to grow again, as has U.S. manufacturing. And last, but not least, the U.S. may be on the verge of energy independence.” All of the factors listed are positive for U.S. equities.
At Last, Germany Secures Total Dominance of Europe
In a recent Bloomberg op-ed piece, Jim O’Neill, the outgoing chairman of Goldman Sachs Asset Management, provides an interesting way to think of German dominance in the European economy: the success of German soccer clubs in European competition. Much like the European economy, German clubs have become more dominant over the last few years against their neighbors. They have beaten English, Spanish and Italian rivals, and this weekend’s Champions League (European club tournament) final was played by two German clubs.
The strength of German clubs doesn’t just apply to on-the-field performance. Fiscally, they are in much better positions than clubs in Spain, Italy and England. While not perfect, the fiscal metaphor can explain much of Germany’s economic resurgence as its neighbors struggle.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
