The uncertainty in Europe continues to dominate global market action, and it remains unclear whether Europe as a whole will move fiscally closer together or monetarily further apart in its efforts to solve its problems. The combination of fiscal rescue packages and increased austerity measures seems to be the clearest path to success, but investors are rightfully questioning whether, for example, Greece will be able to become austere enough for the markets to regain confidence. Within the United States, the economy continues to show slow signs of improvement. First-quarter gross domestic product (GDP) growth was revised slightly lower (from 3.2% to 3.0%), but consumer confidence readings rose in May as the improving labor market overshadowed stock market volatility. On the earnings front, both reported results and expectations have risen over the past couple of months as well.
The main issue currently plaguing investors is the degree to which fundamental uncertainty has inflicted damage on overall economic conditions. The most pessimistic view is that we are witnessing the beginning of a movement that will drag down the global economy; the most optimistic outlook is that what we are seeing is no more than mindless panic, which will be quickly overcome by fundamental strength. We are not subscribing to either extreme, but our sympathies lie more with the latter than with the former. By our analysis, investors are beginning to move from panic mode to a wait-and-see approach, and while we do think that fundamental strength will win out, we acknowledge that it will take some time.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access