Tom Sowanick is Co-President and Chief Investment Officer at Omnivest Group in Princeton, N.J.
Thus far, November is proving to be the opposite of October with respect to performance of various asset classes. For the week ending November 25, stocks fell globally -- chased lower by Europe's unresolved issues.
Belgium and Hungary were downgraded late in the week, fueling more fire to the already credit-sensitive region.
Last week we had a failed auction for German bunds which raises the issue as to whether the safe haven (Germany) is losing its place of superior credit quality.
Interest rates throughout Europe rose. However, in the Americas -- U.S., Brazil and Canada, all enjoyed modestly lower rates on the week. In Asia, China was the winner as 10-year yields fell 11 basis points (bps) on the week, following a disappointing PMI report of 48 versus expectations of 51.
In the U.S., economic data continues to portray an economy that is expanding which is evidenced by better-than-expected Durable Goods Orders, better-than-expected Home Sales, and a much better-than-expected Leading Indicators report of 0.9 percent and another week of Initial Unemployment Claims of less than 400,000.
Nonetheless, investors continue to take their cues from the never changing progress in Europe with respect to their sovereign credit crisis. The International Monetary Fund (IMF) appears to have cobbled a financing plan which will provide liquidity to healthy countries (if they need it) in order to prevent a lock out to financing. It also appears that Germany and France may be putting together their own ‘super fund’ in order to ease significant pressures in Europe.
The financial crisis may have finally gotten to the point where European leaders can no longer afford to continue to kick the can down the road.
This past week, several Wall Street firms have published reports on what could happen to financial markets and economies if the euro were to fall apart. This was coupled with an ill-timed Federal Reserve announcement which stipulated that large U.S. banks would need to stress test against the following scenarios: a 52 percent decline in U.S. equities, an increase to 13 percent unemployment rate, another 21 percent drop in home prices and the escalation in the European financial crisis. This announcement is ill-timed because these stress tests are sending a sour message to investors.
This week the markets will contend with a potential release of the 6th IMF/European Union (EU) loan tranche to Greece.
New Home Sales, the S&P/Case-Shiller Home Price Index, Chicago PMI, the Beige Book, ISM Manufacturing and Initial Unemployment Claims will also be released this week. In addition, the all-important monthly employment data will be released this Friday. Most investors will be keen to see if the October data is revised higher like the previous month's data.
And while November has proven to be a very tough month for financial markets, it was not because of the economic fundamentals, but because of the fragility of the sovereign credit crisis.