Weekly Update – June 8, 2012

European economic troubles were not enough to prevent the Dow from finishing up 93 points on Friday, the index’s fourth positive finish in five days.  For the week, the Dow rose 436 points, or 3.6% – the index’s biggest weekly gain of 2012.  For the year, the Dow is now up 2.8%.

Most attention remains on Europe and Spain in particular, as another downgrade of the country’s credit on Thursday preceded news on Friday that Spain might ask the European Union for a bailout of its banks as early as this weekend.  In response, a meeting has been scheduled this weekend between the 17 EU finance ministers, with hopes that a plan can be set in place to quell Spain’s banking troubles before the Greek elections on June 17.  Further adding to the European troubles were reports from Germany and Italy citing slowdowns in exports and industrial production, respectively.  One piece of news initially cheered by investors on Friday was the announcement of a .25 point interest rate cut in China.  Though the cut will act as a stimulus measure, it also signals recognition of a slowing Chinese economy, which more-than-likely will be confirmed this weekend when China releases a large batch of May economic data.

In the US, comments from Fed Chairman Ben Bernanke on Thursday left the door open for another round of stimulus.  Actions in Europe and their effect on the global economy will play a large role in whether or not any further steps are taken.

Our trust preferred portfolios continue to withstand the market volatility, outperforming the Dow by approximately 6%, returning 8% on average versus 2% for the Dow, year-to-date through Thursday, June 8.  Energy stocks in our portfolios have been adversely affected by falling oil prices.  Crude oil briefly traded below $83 per barrel on Friday for the first time since last October before closing at $84.10.  Crude oil prices are sensitive to world economic growth forecasts and geopolitical unrest such as found in Iran, which has been calmer than earlier in 2012.

Next week, economic reporting highlights include retail sales on Tuesday, inflation data on Wednesday and Thursday and initial jobless claims also on Thursday.  Expect May retail sales to slip slightly from April, inflation to remain a non-issue and jobless claims to settle in the 370,000 range.

Have a good weekend,

James Skjong