Financial Markets Recap
Written by: Ryan Bouchey
Welcome to our first installment of a “Market Recap” style blog. Typically we are able to cover the past week’s headlines on the radio (Saturdays at Noon – 810WGY) but tomorrow we are off the air so we are recapping it here on our blog instead. Looking back at this week’s events there were a few important news pieces that came out to support our views on both domestic and international economies and how the stock markets may react. Let’s dive in:
Walmart
Walmart announced this week that it’s planning to raise its minimum wage to at least $10 / hour by 2016. Why is this big news for U.S. markets? Unemployment peaked back in October of 2009 at 10%. Since then we’ve seen the job market steadily improve to the point where unemployment is down to 5.7%. With the job market improving so much over the past five years, why haven’t we seen a major jump in GDP growth? Since the bottom of the great recession we’ve only seen GDP grow on average at 2.3% and 2014 was no different with a rise of 2.4%. A major headwind to the growth of the U.S. economy has been stagnant wages – even with improvement in unemployment figures. We have stated that once the U.S. economy breaks through some of these headwinds there would be continued room for growth in the economy and the markets. With Walmart being the largest American employer, it’s a strong sign of a tightening labor market and an indication that wages may be on the rise.
Greece
The January elections in Greece put a new party in charge of Greece and their faltering economy. The left-wing Syriza party is led by Alexis Tsipras and they are not a proponent of the bailout terms handed to them five years ago by the EU. Their goal is to end austerity, reverse budget cuts and boost its public spending. Germany on Thursday rejected a proposal by Greece to extend its bailout aide. The current bailout ends at the end of this month. Typically news like this would have a greater impact on Europe as a whole, but yesterday we did not see that. With the help of the European Central Bank and their shot at quantitative easing (similar to what the Fed did in the U.S.) the rest of Europe has been protected from the ongoing troubles in Greece. While these talks will certainly have an impact on Europe and we will continue to monitor closely, we feel that there is real opportunity in Europe given valuations and what their Central Bank is doing. They are in a similar position to when the U.S. was coming out of our recession. They still have economic headwinds and issues to work out but as we discussed at last week’s State of the Economy we feel it’s a good place to invest in given market conditions and their fundamentals.