Bad Now…Worse Later?
The outlook is dimming, as the International Monetary Fund cut its global growth forecast, saying “the recovery has suffered new setbacks, and uncertainty weighs heavily on the outlook”. The IMF expects the global economy to grow 3.3% this year…the slowest pace since the recession. The lender also warned that there is an “alarmingly high” risk of an even steeper slump. And the onus is on officials in advanced economies: “The answer depends on whether European and US policy makers deal proactively with their major short-term economic challenges”.
Another troubling signal: the US trade deficit worsened to -$44.2 billion because exports declined as demand weakened, reflecting the economic troubles in the euro zone and slower growth in Asia.
Small Business Owners Are Worried
As the fiscal cliff looms, small business owners are feeling uncertain, with the NFIB Small Business Optimism Index falling to a level that is considered “recessionary”. Fewer small business owners plan to spend more on capital, fewer are planning to hire more employees, and plans to increase inventory are flat.
Consumers, On the Other Hand, Are Confident
The Federal Reserve reported that the US economy expanded “modestly” last month, though the labor market and consumer spending showed little improvement. But lackluster data didn’t get in the way of consumer confidence, which belied economic reality and jumped again (surprisingly) to the highest level in 5 years, as consumers’ expectations for the future improved.
Investors Are In “Wait and Flee” Mode
Investors continued to take money out of the markets…and the pace is picking up. The week before last, investors pulled $10.6 billion out of stock mutual funds, bringing this year’s outflow to more than $100 billion. It was the biggest outflow since August 2011, when the US credit rating was downgraded by Standard & Poor’s. And as a point of reference: during the same period in 2010 outflows amounted to $57 billion, and $80 billion in 2011.
Earnings Season Kicks Off
Last Tuesday marked the 5th anniversary of the S&P 500’s record close at 1,565.15. Also on Tuesday, aluminum producer Alcoa unofficially kicked off earnings season, reporting a 3rd quarter loss of $143 million and cutting its forecast for global consumption for next year…and then the stock saw its biggest drop in 11 months. Generally, earnings this quarter are expected to be lower, as cost-cutting measures that previously boosted profits have run their course.
Market’s Worst Weekly Loss in 4 Months
At the market close on Friday, all three major indexes posted their biggest weekly declines since the first week of June, with the S&P 500 losing -2.2% for the week. All sectors were down for the week as well, led by a -3.1% decline in technology.