Weekly Update – May 18, 2012

The excitement of Facebook’s initial public offering on Friday proved to be no match for Europe as Eurozone debt worries weighed on the Dow, helping to push the index down 73 points, or .6%.  For the week, the Dow was down 451 points, or 3.5%.  For the year, the Dow is now up only 1.2%.

After a week filled with lackluster US housing, employment and retail sales data, investors hoped Facebook’s trading debut would help reverse the market’s downward trajectory.  Though Facebook’s IPO was the second largest ever in the US, raising $18.4 billion (more than all other IPOs so far this year combined), it wasn’t enough to overcome more negative news from Europe.

Greece continues to be the flashpoint abroad, where amidst a small-scale run on Greek banks, the country’s parliament dissolved on Friday to make way for fresh elections on June 17.  The outcome of the elections will factor heavily in Greece’s continued participation in the Eurozone.  Should frustrated Greek citizens vote in favor of anti-austerity parties, odds of default and a Eurozone exit would increase.  The anti-austerity sentiment found in Greece has been creeping slowly into Italy and Spain as well, as resentment within the two countries towards Germany and the German-led austerity packages continues to deepen.

Our trust preferred portfolios have been affected by the turmoil in Europe the past weeks, but continue to outperform the Dow by approximately 5% through Thursday, May 17.  Trust preferreds are less volatile than equities while continuing to yield 7.5%.  Crude oil prices fell with the economic uncertainty, dragging down energy stocks.

Next week on Monday, the results of the weekend European Union meeting undoubtedly will be news.  Housing data (including existing and new home sales on Tuesday and Wednesday) and a consumer confidence reading on Friday will be the US economic reporting highlights.  Expect sales of both existing and new homes to remain flat and consumer confidence to show a decline from the previous reading.

Have a good weekend,

James Skjong