We hope things are starting off well for you in the beginning of Spring. Due to all the recent events I thought it best to update you on what we are hearing.
The markets have given back a portion of the growth we have seen since the market bottom March 9th of 2009. According to the Wall Street Journal, remember the S&P 500 index has increased 85.8% from this low through last night (March 16). Keep in mind it’s typical for markets to consolidate and lose some ground when they gain so much in this type of time frame. Now with the recent Mid-east tensions and the Japan earthquake some market volatility has reappeared and uncertainty has risen.
On a conference call yesterday with Fidelity Investments we learned the following regarding Japan. First, the next couple days are critical as Japan struggles to get control of their nuclear reactors. Assuming the outcome improves and avoids a horrific outcome we could see the market rally fairly quickly.
Next, with Japan considered a Tier 1 supplier to global manufacturers in the auto, tech, and electronic businesses, supply interruptions are still unknown. As global manufacturers scramble to offset Japanese components we could see time delays to product production. It appears there are alternative suppliers stepping-up and offering supplies to offset most Japan delays.
As time goes by and Japan begins to rebuild this could prove stimulative to Japan’s economy as well as globally as they buy steel, wood, concrete, industrial equipment, etc. Keep in mind this can create more inflation as well as higher interest rates.
In terms of the oil situation, as of late, we have seen the oil markets calm down and give back some of their gains. It appears other OPEC countries are stepping up and offsetting the Libyan supply interruptions. The real question is can Saudi Arabia avoid the political unrest experienced in Egypt and Libya. We sure hope so. All of this heightens the need for an effective energy policy here in the U.S. Who knows, these recent events could force Congress and our Administration to deal with our long-term energy problems.
In the terms of the U.S. economy we have seen some improvement since the latter part of 2010. Unemployment has declined and both the consumer and businesses are beginning to spend money. And other than higher gas prices, consumer’s attitudes appear to be more positive. Also, we are hearing that small investors are slowly re-entering the equity markets.
In summary, it almost never benefits an investor to react to these types of events and short-term trade in this financial environment. Keep in mind, for mutual fund investors, money managers and their analysts have a plan and make the necessary changes as they “objectively” see the need. They have much more information than we can imagine. As of recent we have heard mutual fund managers use this type of short-term fear to buy good stocks and bonds that become very attractive due to the market volatility.
We hope this helps and we pray for our Japanese friends. The effect on Japan’s people is so much more important than any of our financial concerns.