October 29, 2011
Schwab Market Perspective: Missing the Forest for the Trees?
By Liz Ann Sonders, Brad Sorensen, and Michelle Gibley
In investing, a danger is getting caught up in day-to-day, hour-to-hour developments. And typically, it’s the negative news that gets the majority of the attention from the media. Looking at the bigger picture is important for investors that have longer-term horizons.
The market continues to be at the mercy of developments out of Europe, with much of the recent focus on Greece. Discussed in more detail below, Greece itself is a relatively small country in terms of economic size and importance, but is getting the lion’s share of media and market attention. Its importance is heightened due to it’s interconnectedness with other European nations, but overemphasizing its problems can obscure the bigger picture solutions that are being formatted. But even the broader European focus has largely seemed to overshadow developments in the United States, which remains the world’s largest economy.
Key Points
* Earnings season was good and economic data in the United States has shown signs of improvement. Although we don’t believe we’ll see robust growth in the near future, we do believe the economy is improving. But investors appear to be unconvinced that the picture may be brightening.
* Headline inflation continues to run higher than we’d like to see but we don’t believe sustainable price gains are likely. The Fed continues to be extremely accommodating, seemingly more concerned about the potential for deflation.
* Although Greece has garnered the headlines, Italy has the potential to be a much bigger problem. There are positive signs of progress in Europe and a tentative agreement has been reached, but hopes for a true long-term solution remain thin. Conversely, Chinese growth, while slowing, is likely to suffer no worse than a soft landing.