How many changes in direction are you realistically supposed to tolerate in one week? Wednesday through Friday we witnessed dramatic market movements across the broad indexes. The markets appeared to be waiting, then panicking and then again waiting. Granted, the unpleasant impact of Hurricane Sandy added a new level of uncertainty to an economy moving slowly towards recovery; last week’s economic data was respectable on the corporate earnings fronts. Private sector payroll numbers, with the August-September upward revisions, were favorable, as was the upward gains in personal spending and in consumer confidence. Internationally, eleven of 12 major markets turned positive, significantly. Based on valuations, European, Asian, and Brazilian equity markets are becoming more eye-catching. Comparatively, these foreign markets are cheap versus U.S. equities.
Internationally, with unemployment running above 25% in the twelfth largest economy in the world, the European Central Bank (ECB) has made it clear that it won’t let Spain collapse, as that would be the lighting of a fuse that would explode what is now known as the European Union. As for another troubled country in the EU, specifically what needs to be paid attention to are the actions of the Greek parliament, as they are set to vote on new austerity measures and the 2013 budget. If those measures don’t pass, the next tranche of bailout money from the ECB will not be given to Greece and the country could go bankrupt in November. Not as calamitous as Spain going into a death spiral but a Greek exit from the Euro and a return to the drachma would no longer be unforeseeable in the near term.
I remain optimistic. The ongoing hiatus of U.S. business investment where deferred decisions reign supreme and cash is stacking up is about to end, I sincerely have a confident feeling. Businesses will receive certainty from the election (even if they don’t get the rules or politician they want). I expect a period of each party licking their respective wounds and realizing that now that the silly season is over, it’s way past time to get to work for the American people. I’m optimistic and confident for the week ahead.