As most advisors are surely aware, the major market indices were down last week.
“The Dow Jones Industrial Index fell 4.02%. The S&P 500 Stock Index declined 4.23%, while the Nasdaq Composite finished 5.02% lower,” noted Frank Holmes, CEO and chief investment officer of U.S. Global Investors in San Antonio.
“Should investors’ expectations for an improving economy not come to fruition in a reasonable time frame, it could be a threat to stock prices,” he added. “As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.”
Treasuries rallied sharply last week as the flight-to-quality trade accelerated, Holmes explains. The yield on 10- and 30-year treasuries both fell by about 25 basis points this week.
Macro factors have been critical in driving the market recently, he says.
The current environment appears similar to 2008 in many ways, but there are also crucial differences. The economy is recovering and global economic growth still looks like the most likely outcome, Holmes points out.
In addition, while some fear/risk indicators are elevated they are nowhere near the panic levels seen during the past crisis, he notes.
“Until the Greek situation is resolved with some degree of certainty, the market will be at the whims of macro risk factors. Concerns of a full blown credit crisis have probably diminished some but cannot be ruled out,” said Holmes.