Stocks broadly rallied Friday, ostensibly a thumbs up on the European Union summit of the last two days. The Dow added 187 points today, recouping most of Thursday’s slide. Even granting the EU confab a success, however, it is still far from clear where the funds that Italy and others will need to replace their maturing debt in 2012 will come from. The Germans and the ECB, which some regard as a latter-day Bundesbank, are certainly not going to pony up the sums that will be required. Nor will the IMF be getting any new funds from the United States to help out, especially not in an election year. We doubt that the past two days of meetings in Brussels will prove to be the summit to end all summits, and we suspect that Europe’s debt crisis will roil global markets again at some point. Nonetheless, it is encouraging that U.S. stocks have managed to string together two weeks of higher prices. For the most part, U.S. economic indicators continue to exceed market expectations, including today’s report from the University of Michigan that consumer sentiment rose to a six-month high in the first part of December.
Most of the European Union’s members will strive to achieve a more fiscally united front against their antagonists in the great Euro-Debt drama – the U.K. is the principal exception – and all 17 of the members of the euro currency union will sign some of their tax and spend decisions over to Brussels. The mostly united front of fiscal rectitude that emerged from this week’s European Union summit meeting was something most investors believed the original Maastricht Treaty embodied at its signing almost 20 years ago. Now let’s see how well Europe executes on these latest good intentions, which probably won’t be easy in the sluggish economic environment that appears to lie ahead for Europe in 2012. German Chancellor Angela Merkel proclaimed she was happy with the latest grand plan, which we take to mean that the result is not quite to the liking of Italy and Spain and probably not France either. Sovereign bond yields in these nations fell today, while those in Germany and the U.S. increased, but spreads were wider over the past two days, a somewhat negative verdict on the outcome of the two-day EU summit meeting. Likewise, today’s rebound in U.S. and European stock prices did not quite make up for Thursday’s setbacks. Still, for the week, U.S. stock market averages advanced from 0.8% (NASDAQ) to 1.4% (Dow Jones Industrials), while Europe was flat to down modestly. The S&P 500, up 0.9% this past week, is now down 0.2% for the year to date and up 1.8% counting dividends. The chart below shows that there is a lot of ground for investors to make up after the three big bear markets of the past 12 years (two in stocks and one in real estate.)
A few ideas/dates/facts/links worth paying attention to over the coming week:
- December 13: Zew surveys of economic sentiment for Germany and Europe are due.
- December 13: Fed’s Open Market Committee meeting, with markets looking for hints of QE or other unconventional monetary ease.
- December 13-16: U.S. Retail Sales, PPI, Industrial Production, CPI reports for November.
Copyright © 2011 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.