Following Standard & Poor’s downgrade of U.S. debt during the week of August 10th, investors pulled $40.3 billion out of long-term mutual funds of all types, according to the Investment Company Institute (ICI). Put in perspective, the outflow of $40.3 billion was roughly 25 percent more than was pulled out in the previous four weeks combined and more than double the $17.0 billion pulled out the previous week. Since, May 1, according to the ICI, investors have pulled out more than $85 billion.
The extreme volatility of the last few weeks not withstanding, the economic recovery continues to follow an atypical course. Generally, the more significant a market downturn is, the stronger the rebound. Yet, although the economy contracted about 4% during the “Great Recession,” the worst since the Great Depression, this recovery has been lackluster. In fact, growth is running at about half the expected speed due to tight credit conditions, a depressed housing market and a pervasive lack of consumer and corporate confidence. Unsure whether better days are around the corner or further down the road, investors have been focused on capital preservation and the search for decent yield.
If the “Super Congress” makes essential budget cuts and positive signs like strong corporate earnings and robust exports continue, we’ll see a real improvement in investors’ confidence. That optimism will move steadily from Main Street to Wall Street and give our recovery the boost it needs. In the meantime, diversification and investment discipline will continue to be the best policy in this environment.
Showing posts with label Consumer Confidence. Show all posts
Showing posts with label Consumer Confidence. Show all posts
Monday, September 5, 2011
Tuesday, July 5, 2011
Recovery? What Recovery?
Soft. Stalled. Uneven. These are the words we’ve read in headlines that describe the market’s recovery. The economy grew at just an 1.8% annual rate in the first quarter of this year, down from 3.1% in the fourth quarter of 2010. Experts agree that two factors critical to any market recovery have been absent in our transitioning market. To get the recovery into high gear, home prices must stop declining and begin their ascent. Second, consumers, the driving engine of our economy, must regain their confidence and begin to spend more freely.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
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