“Adversity is the foundation of virtue”
Ancient Japanese Proverb
The thoughts and prayers of all of us are certainly with the people of Japan this week as they deal with the devastation caused by the enormous earthquake.
In market terms, impact from the tragedy now begins. Business Week reports in its March 14 edition*, that The Bank of Japan said it will pump a record 12 trillion yen ($146 billion) into the financial system beginning immediately. As well, the article quotes Charles de Vaulx, who manages the New York-based International Value Advisers LLC, and the $1.8 billion IVA International Fund, which includes significant Japanese stock holdings.
He says, “The purely economic consequences will be modest: some reconstruction, some more government spending. No major international consequences, either, except maybe helping drive long-term rates higher. We do not expect to make any significant changes to our portfolio as a result of this tragedy.” We find this point of view to be enlightened, in our opinion, based on market performance after other natural disasters such as Hurricanes Katrina & Andrew.**
Closer to home….
The Markets
Investors continued to try to figure out which way domestic equities are headed, but the indexes weren't being much help. The Dow industrials have now made a round trip back to the 12,000 level since early February. The S&P 500 has bounced around between roughly 1300 and 1340 during the same time, though the large caps have recently begun to pull away from the Russell 2000 and the Nasdaq. By week's end, the Japanese disaster had yet to have a substantial impact on U.S. equities, though 10-year T-bond yields rose slightly.
Last Week's Headlines
- Moody's sparked renewed eurozone anxiety when it downgraded Greek sovereign debt from Ba1 to B1, indicating it considers Greek bonds in danger of default in the future. Moody's also lowered Spain's credit rating slightly, to Aa2 from Aa1.
- Surging oil prices in January helped push the U.S. trade deficit to its highest level in five months. The Census Bureau said January's gap between exports and imports rose almost 15%, from $40.3 billion to $46.3 billion. Though exports of goods increased by $4 billion, imports rose more than $10 billion. And the pain may not be over yet; the Commerce Department's chief economist said the most recent spike in oil prices won't be reflected in the data until the April and May reports.
- Chinese officials said growth of both exports and imports slowed there in February, resulting in an unusual $7.3 billion trade deficit.
- February foreclosures were down 27% from the year before, according to RealtyTrac, which attributed the decline to slower processing of paperwork by banks. Ten states accounted for more than 70% of foreclosure filings, which fell 14% from January to a 36-month low.
- Higher gas prices didn't deter Americans from spending more in February. The Census Bureau said retail sales rose 1% from
January, and were up 8.9% from a year ago. Auto and vehicle-related sales were particularly strong, up 25.9%.
Eye on the Week Ahead
Investors will continue to assess the potential global economic aftershocks of the Japanese earthquake. Tuesday's Fed statement will be watched for hints of any change in future bond-buying plans, while inflation numbers also will be of interest.
Key dates and data releases: import/export prices, international capital flows, Federal Reserve Open Market Committee announcement (3/15); housing starts, wholesale inflation (3/16); consumer inflation, industrial production (3/17); quadruple witching options expiration (3/18).
Data source:
Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no
guarantee of future results. Equities data reflect price change, not total return.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.
*Business Week, March 14, 2011, "Global Stock Rally May Withstand Earthquake, Japan Share Losses"
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