It’s been an incredibly rough summer for the world’s financial markets, battered and bruised by debt problems at home and abroad, weak consumer spending, high unemployment and a seemingly endless wave of foreclosures.
The Standard & Poor’s 500 Index is down 12% since the end of June and higher risk assets have fared even worse—small caps off 21%, developed foreign markets down 18%, emerging markets down 22%. With fear ruling the day, high-quality, profitable companies have been taken down along with the rest of the market.
The safe haven has been high quality bonds, particularly U.S. government bonds and highly rated municipals, but investors who have gone that route are paying a price too. Yields on the 10-year Treasury note are less than 2%, while those on the 30-year have been hovering just above 3%, and even dipped briefly below 3% this week.
While many fear a recession is in the wings, the numbers show the economy has been growing in spite of its problems. Employers are adding jobs, just not fast enough to keep up with population growth or reduce the ranks of the unemployed.
The market drop isn’t so much about what’s already happened as it is about fears of what may happen in the future. Clearly, many people are worried that a default in Greece could lead to defaults in other countries with heavy debt loads, hurting the banks that hold the debt and making recovery in Europe more difficult. On our side of the Atlantic, the debt ceiling debate hurt confidence in the ability of our elected leaders to solve pressing problem—and the fight over spending cuts and tax increases has just begun. It’s no wonder some people prefer to sell first and ask questions later.
At times like these, we need to shut out the background noise and focus on our long-term objectives. A down market is bad for sellers, but great for buyers who can hold on until things turn around
Tags: bonds, Economy, financial markets, Stocks
