San Francisco, Calif. (August 2, 2011)– Stone & Youngberg, a leading financial services firm and the nation’s top underwriter of California and Arizona municipal bonds over the past five years1, is pleased to share the following market commentary from the firm’s Asset Management Group regarding US austerity and investment implicatons:
The US Debt Deal was completed “in time” and a political crisis was averted as the Senate approved the measure this morning. Takeaways from the deal suggest that spending cuts will be approximately $2.5 trillion which is far less than the initially anticipated cuts of $4-$6 trillion. This is welcome news for an economy that is currently operating at stall speed even though rating agencies may ultimately lower their outlook for the US credit rating.
The spending cuts are mostly in non-defense, agency spending (education & transportation) not entitlements (Social Security & Medicare). As with most budget negotiations, spending cuts are back-end loaded. For example, austerity measures will amount to about $50 billion in 2012, $100 billion in 2013, and $175 billion in 2014. The numbers continue to grow as time increases which allow newly elected politicians to debate/vote on their own spending and budgetary plans. Such is the ways of government.
No matter how we slice the details, austerity measures are necessary to improve the long-term fiscal health of the US, but in the near term, these measures will act as a headwind on growth. Taking this into account along with the data from recent economic reports, our 2011 2nd half outlook for stronger growth is being challenged.
Given new sets of information, our investment strategy is evolving and we will be sharpening our pencils over the coming weeks to determine what, if any, adjustments are warranted in portfolios.
An emerging bright spot aside from the strong corporate profits is the early improvement in bank lending. According to the Federal Reserve, bank loans have risen for three months after falling for two straight years. Volume of commercial and industrial loans in the 2nd quarter rose at an annualized rate of 9.6% which is the largest increase in 2.5 years. Banks willingness to extend credit to consumers is at the highest level in 17 years and small businesses are finding credit easier to obtain.
Due to the selloff in equities last week, the S&P 500 index finished July down 2.0%. Commodities, bonds, and REITs posted solid returns last month while large-cap technology and emerging market stocks displayed relative strength. Please see the table below for additional data on the global markets, and please give us a call with any questions.
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This release is for informational purposes only and are solely the views of its author. These views are subject to change at any time based on market conditions and the author does not undertake to update the reader of any changes in opinion or information. Readers should evaluate his or her personal situation with a professional before investing. The information presented should not be construed as investment advice or guidance as to the appropriateness of any investment decision or as a recommendation as to any specific security, sector or strategy. Past performance does not guarantee future results. All investing involves risk and the value of your investment will fluctuate over time and you may gain or lose money.
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¹ Based on number of bond issues 2006-2010, Thomson Reuters 2011
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Contacts: Stone & Youngberg LLC, Steve Hall (415) 445-2656 or shall@syllc.com
Pierce Communications Group LLC, Kimberley Pierce (510) 326-0058 or kimberley@piercecommgroup.com