Fortigent

Of the many global macroeconomic concerns of the past few years, oil has curiously fallen down the list in terms of major areas of investor focus. After recovering in the wake of the financial crisis, the commodity has generally been range bound between $100 and $120 a barrel. Newfound supply of natural gas in the United States has also eased concern about the domestic economys reliance on oil imports from the Middle East.

Global equity markets cheered the European Central Banks (ECB) decision to lower rates and provide further monetary stimulus last week, as the DJIA and S&P 500 gained 1.2% and 1.3%, respectively. As one might imagine, notable outperformance came from Europes peripheral countries with Italy (MSCI Italy) and Spain (MSCI Spain) gaining 3.4% and 2.6%, respectively.

With the backdrop of low interest rates, and sluggish revenue growth, 2014 has been the year that M&A activity finally blossomed. Companies are growing more aggressive in their acquisition tactics, leading to many high profile mergers and numerous opportunities to improve profitability.

This week is full of economic data with the Case-Shiller Home Price index coming out. Also coming out is data on durable goods orders and consumer confidence. On tap for later in the week is the second estimate of Q1 GDP, pending home sales, and personal income growth.

Long discussed pricing pressure is beginning to show up in various domestic indices, leading some to believe the Fed will pull its foot off the brakes sooner than anticipated. While inflation is stabilizing, there are few signs that it is accelerating materially, leaving plenty of room for the Fed to maneuver. It will be important to keep an eye on prices going forward, though, as any acceleration could alter the investment and economic landscape quickly.

For some time, strategists have been bullishly positioned on the U.S. Dollar, anticipating a rally that failed to materialize. The arguments were straightforward the Federal Reserve is exiting its easing cycle, Europe is facing deflationary pressure and likely to ease further, and the economy in the U.S. is on improving footing. Those expectations, while true to some extent, are not translating into gains for the Dollar, leaving many frustrated. The Dollar is suffering from a bad case of dejection and could struggle to see a sustained breakout for some time.

In a less than surprising development, U.S. non-farm payrolls grew by 288,000 in April. While some are loathe admitting the positive nature of Aprils report, there was plenty to be happy about in the latest release, suggesting the economy continues to move towards a more favorable footing. As always in the post-2008 world, caveats remain and the trend in the months ahead will provide a clearer picture into the pace of recovery.

2014 has been a year marked by shaky equity markets and relatively higher volatility than observed in 2013. With falling equity market correlations and increased stock dispersion, it was presumably a more favorable environment for hedge funds. Unfortunately, that has not been the case as most alternative investment approaches are posting less than stellar results so far this year.

A number of Americans breathed a joyful sigh of relief last week after closing the books on their 2013 income taxes. The annual rite of passage rarely elicits excitement when addressed in conversation, and this year was unlikely to be any different. But, the latest tax data suggests the economy is gaining speed, news bound to make even the most hardened filers crack a smile.

With a dissipation of economic stress in Europe, and a general strengthening of economic conditions in the U.S., equity market volatility has plunged to new lows. Some would argue that market intervention by central banks is acting as an unnatural dampener to market volatility, raising the question as to whether a gradual removal of those policies will cause volatility to resurface. So far, the answer is up for debate, but current positioning suggests many investors are becoming complacent and will be caught off sides if such a scenario emerges.

With an unusually harsh winter finally ending, economists were excited to see if labor markets would rebound in March. By many accounts, they were left wanting for more, but the underlying theme in the March report was consistent, steady job growth.

As the first quarter draws to a close, equity markets appear poised to finish in positive territory despite a somewhat tumultuous news environment. As noted by Bloomberg, save for a sharply negative Monday period, the S&P 500 will close out a fifth consecutive quarter in positive territory for the first time since 2007.

After bursting onto the scene earlier this year, Janet Yellen held her first official FOMC meeting last week. Rather than upset the apple cart, she held a largely status quo stance, but several comments raised more than a few questions.

Long dormant after the financial crisis, foreign exchange markets are beginning to heat up, offering ample trading opportunity for asset managers. The U.S. dollar was widely viewed as being the best long trading opportunity for 2014, but so far, that has not played out, with activity in the Euro, Chinese Yuan, and other currencies impeding dollar strength.

The $19 billion acquisition of WhatsApp by Facebook in late February put an exclamation point on several high profile takeovers in the technology space in recent months. Sizeable deals such as Google?s $3 billion acquisition of Nest and Facebook?s $3 billion offer for SnapChat have fueled the idea that an indiscriminate buying spree in the technology space a la 1999 could set up financial markets for another valuation bubble.

After a long period of deleveraging, there are appearances that consumers are entering a stage of releveraging. The devil is always in the details, though, and this releveraging cycle is likely to play out vastly different than those of previous expansions.

The European sovereign debt crisis has all but faded from investors? minds since ECB President Mario Draghi?s famous pronouncement on July 26, 2012 that he would do ?whatever it takes? to save the monetary union. Since that time, equity markets in Europe rallied sharply as accumulated risk aversion fell away.

Earnings season is nearing its finale, and the latest results show plenty of reason to be bullish, but the longer-term trend remains an outstanding question for markets.

Stocks were modestly positive last week following three straight weeks of negative performance. Markets crawled back following an ugly Monday in which the S&P 500 suffered its worst loss in more than seven months. For the week, the S&P rose 0.9% while the Dow Jones Industrial Average added 0.7%.

This Friday investors receive the first official labor market report of 2014. Following a highly disappointing jobs figure in December, many market participants hope to see a rebound - particularly one that will help justify the Feds decision last week to continue tapering its asset purchases.

Active managers faced a difficult road in recent years, leading to many questions about the efficacy of active versus passive investment management. There are signs that the tide is once again changing in favor of active managers and the road ahead could offer happier times.

The environment following the global financial crisis has been a challenging one for asset allocators, as long held relationships shifted and traditional idioms were turned on their head. As we detailed last week in "The Diversification Obituary," investors have seen little work in their portfolios other than US stocks, while supposed diversifiers have offered little more than muted beta and unusually high correlations.

According to some major media outlets, 2013 was the year diversification died. With the S&P 500 racing to a more than 30% gain (the largest since the late 90s), it seemed as though no other asset class truly mattered last year. While it is true domestic equities had a banner year, one-asset class portfolios will never be robust, and there is reason to believe 2013 is a prime example of why diversification is incredibly important.

In the wake of the financial crisis of 2008, investors piled into alternative investments en masse to help insulate their portfolios from another dramatic market decline. For those who had not yet bought into the idea of improving portfolio risk-adjusted returns, the 50% drawdown in the S&P 500 provided all the convincing needed.

Nearing the final two weeks of the year, it is customary to look forward to the trends and events that will shape the coming year. A theme that may come to the fore in 2014 revolves around central bankers, specifically the diverging fates in various economies of the world.

With another month down in 2013, last week came time to dissect the latest report on employment. If the market reaction was indicative, the highly anticipated November labor report did not disappoint, sending stocks up more than 1% on Friday.

The past five years have seen a dramatic influx of investor capital into corporate credit markets. As investors jumped into the market, there is growing concern that credit markets are nearing stretched valuations. Those concerns are likely premature, particularly with central bank intervention in place.

Amid all the Fed talk dominating airwaves and headlines, a few key developments occurred overseas last week that could shape financial markets significantly in the quarters ahead.

The unofficial start to the holiday shopping season kicks off in a few short days. Economic uncertainty abounds, raising fears that consumers will pull back from spending, but some positive developments suggest consumers will be just fine.

A mixture of surprising economic data and changing central bank policy led to sharp moves in currency markets last week. This came after several gyrations in FX markets earlier this year. Looking forward, volatility is likely to remain, but many signs point towards a strengthening U.S. dollar.

For several years now, a common storyline on China was the immense overcapacity in the countrys housing market. A mixture of easy credit policies and officials explicit economic growth plans based on capital investment yielded construction on a massive scale across the countryside. So-called ghost towns emerged as the pace of building and the migration of rural citizens into these cities fell out of sync.

Following an extended delay, investors were disappointed (sort of) to learn that the September payroll report was another dud. The headline figure was below expectations, but investors were largely comforted by knowing this likely extended QE3 further into the future.

Lost in all the discussion about Washington is the fact earnings season is in full swing.It is shaping up to be another interesting reporting season, on account of volatility in the markets and economy.So far, companies are beating expectations, but the broader trend is lower.

Treasury Secretary Jack Lew has publicly declared October 17 this Thursday as the date when the US government would no longer be able to pay its bills, should Congress not reach a budget resolution.A once unthinkable outcome is becoming all too close to reality due to brinksmanship in Washington.For the second time in two years, investors have had to contemplate just how such a situation would shake out for financial markets.

With all the focus on affairs in the US, China and developing nations, Europe has largely been given a free pass in recent months. The lack of attention gave Europe the opportunity to fix some of its troubles, but challenges remain and are likely to surface in the weeks ahead.

Any economics student will tell you central banks must achieve three things to effectively implement monetary policy: (1) independence; (2) credibility; and (3) transparency.For most of the Feds history, the first two characteristics were arguably well attained.However, the group was never well known for clarity into its thinking.

As the Federal Reserve prepares to debate the merits of tapering its asset purchase program this week, a key area of the economy that will be closely analyzed by Bernanke and Co. is the health of the American consumer. There are tenuous signs that consumers are spending more, but attitudes towards the economic recovery are hardly encouraging. Consumers will find it difficult to stay the key cog of economic growth in the U.S., but at the very least, their participation in the recovery is imperative, and leaves much to be desired.

Bear market enthusiasts have so far been disappointed in September after the sudden market rally last week. With equities up more than 1% on the month, many bears pointed to the historically poor performance of equity markets during this month as a reason to remain cautious. Bear enthusiasts need not fear, as markets appear to be converging toward an inflection point right around the Fed meeting in the middle of the month.

Since the end of the Global Financial Crisis (GFC), investors moved aggressively into fixed income asset classes. They were quickly rewarded in the years following the crisis with a combination of falling interest rates and tighter credit spreads, which led to positive absolute returns. The easy money in fixed income is gone, however, and now is the time for careful asset class selection.

As the Federal Reserve grapples with when and how to unwind quantitative easing, interest rates climbed more than a point since the end of 2012. This caused mortgage rates to increase to their highest levels in two years last week, with the average conforming 30-year loan jumping to 4.58% from 4.40% the week prior. Rising financing costs is presenting a headwind for one of the biggest bright spots in the US economy over the past 12 months.

The summer months brought a period of calm to global markets and economies. Nearing the move to autumn, it is time to look ahead and see what resides on the horizon. Investors could be due for a renewed bout of volatility based on any number of events set to happen before year-end.

Prior to the global financial crisis, decoupling was the word du jour. In the years since the crisis began, however, decoupling has vanished from the everyday lexicon. In recent weeks, the financial media noticed a new form of decoupling, one that shows improving growth prospects in the developed world but slower growth in developing economies. Rightly or otherwise, much of that slowdown is pinned on China and recent data continues to suggest a slower pace of growth than investors became accustomed to in prior decades.

In a busy week of economic data, investors ended the week on a mixed note.The government jobs report revealed a labor market experiencing steady if not unspectacular growth, as nonfarm payrolls came in below consensus estimates while the unemployment rate surprised to the upside.

Although it was a quiet week on the economic front, there were a few notable indicators to digest.

In the first quarter, we explored the divergence of emerging market equities from the US. We noted that a combination of factors likely drove the 12% performance differential, including investor risk appetites, inflationary pressures in developing markets, and reduced commodity price expectations.

In April 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The legislation eased a number of regulatory burdens on small businesses and private industry in a bid to boost job growth. The bill made additional headlines for lifting an 80-year ban on solicitation for private placements, the restriction that prevented hedge funds from advertising their wares to the general public.

We shine a spotlight on the obscure market of high yield municipals this week. In the current fixed income selloff, the market has been among the worst performing with a drawdown of 6.1%. Investors could not get enough of the sector in 2012 as they chased yield; the Barclays high yield muni index returned over 18%. Investor sentiment has turned sharply, however, on this asset class. Funds experienced significant outflows over the last couple of months, which is especially troubling for a small and retail dominated market. Why did this onetime darling asset turn into a pariah so abruptly?

Following a few weeks of FOMC-induced turmoil, investors are looking forward to getting back to the fundamentals.Second quarter earnings season are set to kick off July 8 with Alcoa, in what will mark an important reporting period for financial markets.Given the now much telegraphed intentions of the Fed, investors are scrutinizing whether the US economy and corporate sector is ready to stand on its own feet.

After several decades of positive returns, fixed income investors are being treated to a rude awakening in the last six weeks. Recent comments from Federal Reserve officials suggest a sooner than anticipated exit from quantitative easing, raising the prospect of higher interest rates. Throughout the universe of fixed income assets, investors are questioning the future return potential, leading many to wonder, what now?

There have been an incessant number of articles in the past year addressing a Great Rotation by investors the seismic shift in asset allocation predicted to result from a transition to a rising rate environment. Individual investors spoiled by a 30-year secular decline in interest rates, it is thought, will run to new alternatives in the face of this structural headwind for a significant chunk of their portfolios.

Ever since Harry Markowitz brought forth the notion of mean-variance optimization in 1952, academics and practitioners alike have sought ways to build more robust asset allocation methodologies. Recently, the most talked about approach in the institutional world is risk parity, which seeks to focus on risk as its primary input. Risk parity is intuitively appealing, but suffers many pitfalls that investors need to consider.

Unlike most robust equity rallies, however, 2013 performance was initially led by traditionally defensive sectors, such as health care, utilities, and consumer staples. Through the first quarter, those three sectors posted an average return of 14.5%, while traditional cyclicals averaged just 9%. While some speculated this trend was due to investors reach for yield amid a frothy fixed income environment, the magnitude of this sector leadership (in an up move) was certainly unusual.

Global equity markets stammered through a choppy environment last week following increased fears that certain central banks were considering the possibility of pulling stimulus sooner than anticipated. Markets have long been dependent on central banks, but the notion that policymakers could head for the exits leaves investors unsure how to react.

Given the outsized role central banks are playing in todays financial markets, inflation watching has taken on increased significance.It is widely assumed that continued easy money policies are only possible as long as price increases remain under control.At the same time, for a global economy trying to escape an extended period of weak growth and burdensome debt loads, low inflation is a double-edged sword.

Housing, which for so many years represented everything bad about the credit crisis, is finally beginning to have its day back in the sun. Trends in housing markets around the country are improving, to the benefit of the overall economy. It appears that trend is set to continue.

Central banks around the world continue to provide increased stimulus to their respective economies. Increased conviction over pro-stimulus policies comes in light of recent flaws found in the Reinhart, Rogoff January 2010 paper, which suggested that government debt of more than 90% of GDP is detrimental to economic growth. The latest week brought another round of news in the world of central banking, although it seems the number of options left on the table is running short. What central bankers hope for now is that economies will finally enter recovery mode.

As investors near the witching hour of May, the oft-asked question once again comes to the foreground is it best to sell in May and walk away? This year could prove the exception to recent history, but a number of trends are beginning to take shape inside the markets inner workings.

Following the strongest first quarter in 15 years, it is not surprising to see equity markets faltering in April. Last weeks decline of 2.1%, however, may reflect deeper concerns about corporate fundamentals amid a mixed earnings season.

Tax season is once again upon the American population, and this year, just as in years past, people are less than enthusiastic. It is estimated that the average taxpayer contributed slightly more than $11,000 dollars to federal taxes in 2012 and those figures are on the rise. As might be expected in the current backdrop, however, not everyone shares the same opinion on taxes.

In an unexpected development, labor markets fell flat during March. Following several months of healthy job growth, the economy was only able to muster 88,000 new jobs in March, well below economists expectations for nearly 200,000 jobs.

The 30-day implied volatility index for the S&P 500 calculated by the Chicago Board of Options Exchange (CBOE), known as VIX, has long been used as an indicator of market sentiment. Commonly referred to as the fear index, the VIX often portends periods of stress in equity markets, as options traders price in higher volatility in the future. The shape of the VIX futures curve, in particular, has historically been used as an indicator of future volatility levels.

Since the start of the year, investors have seen rapid shifts of sentiment in currency markets. The debasement that for so long was assumed to be a purely Western phenomenon is beginning to impact countries globally, driving changes in expected returns and growth prospects.

Despite one of the sharpest rallies in US equities in recent memory, emerging market equities have been left curiously behind in 2013. Through last Friday, the market segment was down 1.0%, compared to an S&P 500 index that was up 10.0%. This seems to violate the regime that investors have gotten used to over the past 10 years, whereby the emerging markets equity index served as a high beta proxy for the US equity market.

Surprisingly, the February employment report showed a labor market growing at a reasonably healthy rate. Concerns that the sequester would spill into the broader economy have yet to materialize and if recent trends hold, the economy may finally be approaching a point of robust and sustainable job growth.

The use of global diversification in constructing client portfolios has come under fire in recent years due to the underperformance of many risk assets. Traditionalists who stuck to their familiar S&P 500 and BarCap Aggregate Bond index blends generally outperformed their diversified peers in 2011 and 2012, as historic risk premiums failed to materialize and various alternative investment strategies faced headwinds.

Equity markets started a third consecutive year in rather impressive fashion, gaining more than 6% to date. With so much optimism in the investment community, it is always worth keeping an eye open for risks possibly overlooked. By now, it is apparent that investors are increasing their exposure towards equities with arms wide open. Data from the Investment Company Institute (ICI) estimates $39 billion flowed into equity mutual funds this year through February 13. Following outflows of $153 billion in 2012, the sudden reversal has been impressive.

For several years, investors have wondered why M&A activity has been so benign.Corporate management teams cited uncertainty about the economic outlook as a primary reason for the depressed activity.With the latest round of tax increases and revenue cuts determined, companies finally appear willing to free their animal spirits and embark on the path of acquisition.

Following recent recessions, it was commonplace to rely on American consumers to bail out the economy. The reliance on the American consumer was widely understood as the best remedy for an ailing economy. We are not as fortunate this time around and our dependence on consumers is one reason for the sluggish rate of recovery since 2008.

For the 35th consecutive month, private payrolls registered positive growth. It was hardly the robust report economists would prefer, but the labor market continues to mend. However, there are still plenty of reasons to be concerned, especially with sequestration on the horizon.

In fewer than 60 days, one country has made a splash larger than all the others. No, we are not referring to the US, where Barack Obama was re-elected to a second term. Nor are we referring to China's recent transition of power. Instead, the country we reference is Japan. After decades of malaise, Japanese officials moved to embrace policies previously only accepted by Western officials.

The European sovereign debt crisis that first erupted in 2010 and stoked almost three years of intense market volatility has all but faded from the front pages. Overshadowed by domestic policy issues and European Central Bank (ECB) President Mario Draghi's pledge to do "whatever it takes" to save the Eurozone, fears that the monetary union would crumble and unleash a maelstrom of financial distress appear to have dissipated.

Last week we discussed the debate over active versus passive management. We believe active managers can add tremendous value in particular segments of the market, despite recent challenges. Outside of the active management discussion, many investors are deciding whether equities are a prudent place to allocate capital at this point in the market cycle. The first week of the year answered investors' opinions on that question loud and clear.

There is no doubt that 2012 will be remembered by many investors, for reasons both good and otherwise. One group less likely to remember the good of 2012 is active managers. Across the universe of hedge funds and mutual funds, relatively few were able to outperform their comparative benchmarks. This continues a long running trend of active managers lagging their less active counterparts and raises many questions about the efficacy of active management.

Discussions of the fiscal cliff are capturing investor's attention, largely at the expense of trends pointing in the right direction. Year-end is synonymous with future prognostications, but current indicators suggest there is reason to be optimistic about the turn of the calendar this holiday season.

Managed futures strategies, or systematic trend followers, have long been an important component of diversified high net worth portfolios. Because of their ability to go both long and short in more than 100 global futures markets spanning equities, currencies, commodities, rates, and bonds managed futures have historically generated very uncorrelated performance to traditional investments.

Equity markets climbed higher for a second straight week, extending a rally that began November 16. For the week, the S&P 500 rose 0.6% and the Dow Jones Industrial Average gained 0.2%. In the post-mortem on Q3 earnings season, much has been made of the first quarter of negative earnings growth in three years. However, analysis by Morgan Stanley reveals an even more disturbing picture of corporate America: just 10 companies in the S&P 500 delivered 88% of the indexs earnings growth. Of those 10, four accounted for more than half and Apple alone made up nearly one-fifth of the indexs growth.

Since reaching a near-term top in mid-September, the S&P 500 Index fell more than 7%. After a 4% rally in the last five trading days, there are reasons to believe equity markets are poised to extend recent performance despite headline concerns.

As we move closer to closing the books on another earnings cycle, it is time to look back at the hits and misses for the quarter. Unfortunately, this quarter brought more misses than investors have seen in quite some time, despite a greatly reduced bar. The outlook also leaves something to be desired, with companies cutting forward guidance and analysts ratcheting down estimates for the next two quarters.

While the presidential election in the U.S. was on the forefront of most investors' minds, current events in China could be equally important to the global economy. China is going through a political transition at the same time as it seeks to re-balance its economy. Whether those efforts will be successful remains a great unknown.

Next Tuesday's election will bring some clarity to the types of policies that will shape the fiscal and economic future of America. President Obama and Mitt Romney certainly share different visions on how the US should tackle middling growth, while addressing the longer-term issues of the US fiscal deficit and seemingly unsustainable entitlement programs.

In the years since the global financial crisis, investors have funneled money into fixed income securities. This year alone, more than $260 billion found its way into fixed income mutual funds. In an environment desperate for yield-oriented solutions, such demand is not surprising. What might be considered surprising, however, is investors' willingness to embrace such yield with extraordinary risk attached.

The return of commodity inflation raises several questions, primary among them being the impact it will have on emerging markets. While rising commodity prices are generally bullish for equity prices in emerging markets, it may also inhibit central bank flexibility at a time when many developing countries are experiencing decelerating economic growth. This issue was paramount in 2010, leading to underperformance in many EM stock markets. Since then, however, commodity prices have generally moved sideways, allowing those fears to subside.

Despite the release of the September labor report on Friday, small business owners seemed to take the biggest proportion of the spotlight last week. According to the Huffington Post, Romney and Obama mentioned the phrase "small business" a total of 29 times throughout the Presidential debate. The issues and importance placed on small business are unlikely to be as cut and dry as both candidates made them seem.

Entering the final quarter of 2012, many investors may find themselves apprehensive about the outlook for markets and the broader economy. While the pace of economic disappointment appears to have slowed down and actually reversed according to the Citigroup Economic Surprise Index actual data levels continue to suggest an anemic economic state.

U.S. Presidential candidate Mitt Romney received sharp criticism this week for his comments regarding the "47% of people who pay no taxes." Regardless of one's political stance, Romney's comments were instructive in highlighting a very real problem. The notion that Republicans or Democrats deserve blame for the current challenges is shortsighted, however, because both parties were contributing members to the current legacy.

The week was overshadowed by policy actions from the Federal Reserve, which led to a 2.2% gain in the Dow Jones Industrial Average and a 1.9% increase in the S&P 500 Index.

Widely reported last week was anemic labor market growth in August. Some talking heads took this news in stride, assuming this would guarantee further market intervention by the Fed, but there is a danger in assuming any form of quantitative easing will alleviate the intermediate-term concerns of the market.

In a week of relatively light trading to wrap up the summer, equity markets trickled lower, as the Dow Jones Industrial Average lost 0.5% and the S&P 500 Index fell 0.3%. It was a mixed week of economic data in the U.S., but markets were clearly locked in on Ben Bernanke's speech in Jackson Hole, Wyoming. News on housing seems to confirm that a bottom is in place, while manufacturing data continues to move in all different directions.

A relatively quiet, end-of-summer week resulted in modest losses for equity markets. The Dow Jones Industrial Average closed down 0.9% and the S&P 500 index lost 0.5%. There were limited amounts of economic data for the market to digest last week, but plenty of other headlines kept participants active. It was a decent week overall for economic data, as reflected by the continued recovery in the Citigroup Economic Surprise Index.

As the economy continues to grind along at a sub-optimal rate of growth, many pundits are calling for additional quantitative easing measures from the Federal Reserve. Recent inflation data keeps the door open for further easing, but pockets of higher prices exist, keeping the Fed at bay.

As we head further into the second half of 2012, it is clear that policy from central banks in the US, Europe, and China will drive markets and the global economy. Monetary policy in the US is becoming less impactful, while central bankers in Europe appear unwilling to tackle the enormity of their collective problem. It could be China that provides a sparkplug for second half global growth...

With the first half of the year in the rearview mirror, investors might be lulled into thinking the most active period of the year is also in the rearview. Fast forward to year-end, though, and investors may beg for a return to the sanguine days of early 2012. A range of events in the coming months will likely dictate market optimism for 2012, 2013 and possibly beyond.

At this juncture, positive catalysts seem few and far between. According to FactSet, 18 of 22 companies have already guided lower for the third quarter. Analysts are also ratcheting down forecasts quickly, with flat earnings growth expected in Q3. While growth is expected to pick back up in the fourth quarter, analysts have not cut those estimates aggressively yet. If the economic picture does not improve in the next few months, expect a pattern of downgrades to follow suit.

A paradigm shift away from active management has been in place for more than a decade. Active mutual funds held more than 19 times the amount of assets than passive strategies before the SPDR SPY ETF was launched in 1993. As seen below, they have gradually lost market share to passive vehicles, particularly in US Equities.

Equity markets started the third quarter in negative fashion, with a poor government jobs report sparking the decline. Following an astoundingly poor May jobs report, market participants were hopeful that June would bring about at least a normalization of labor data. Thursdays ADP employment report increased optimism that May was an anomalous reading.

In the past two weeks, several important indicators have illustrated a market that, while not quite in a state of recovery, appears to be stabilizing. This sentiment was echoed in the latest Beige Book released by the Federal Reserve, which reported, several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.

Institutional and individual investors are at an uncertain juncture, waiting to see what the next shoe to drop is. With an important series of events occurring soon, such as the US Presidential election this fall and the fiscal cliff facing the US at years end, investors may need to wait to get more clarity on the market outlook.

Consumers have long been the cog behind the American economic engine. After suffering a terrible fate in 2008, there was a long, slow build to post-recession normalcy. Consumer balance sheets are in a better place, but remain tenuous and suggest there continues to be a long distance to travel before we can once again depend on the American consumer to be the buyer of last resort.

Markets posted their best returns of 2012 last week as investors anticipated additional policy action from global central banks. A series of events during the week heightened optimism that central banks would once again step in to support financial markets. In a Wednesday release, the European Central Bank did not cut its policy rate, but ECB President Mario Draghi said the bank was ready to act in response to the deteriorating state of the Eurozone.

During an especially difficult week, global equity markets were deep in the red, as the S&P 500 Index lost 3.2% and the Dow Jones Industrial Average fell 3.3%. There was no shortage of disappointing data during the course of the past week, ranging from weakness in the ISM manufacturing survey to an underwhelming May labor market report. It was such a bad week, in fact, that Bespoke Investment Group found that 18 of the 21 economic indicators released in the U.S. fell short of expectations.

Markets rebounded last week after a two-week slide. The S&P 500 and Dow Jones Industrial Average rose 1.7% and 0.7%, respectively, in a choppy trading period. Discussion of a potential Greek exit from the Eurozone rattled investors, while economic data in the US was modestly positive.

Worries over the European sovereign debt crisis worsened this week as Greeces political instability increased concern that the country could depart the Eurozone. Greece saw a virtual run on its banks during the week, as depositors withdrew 1.2 billion in two days on fears of massive devaluation from a return to the drachma. While this represented just 0.75% of Greek deposits, it foreshadows a potentially larger crisis if a Greek Eurozone departure becomes imminent.

Strength in the corporate sector since the recession ended has been well documented. In the face of general economic malaise, record profits have been achieved through aggressive cost-cutting and low financing costs. This phenomenon has been one of the major pillars propping up the markets (with the other being central bank policy). Now with Q1 earnings season all but over, it is not unreasonable to question whether that corporate strength is fading. Initial impressions of first quarter earnings season were very favorable after the first big wave of earnings releases.

Market sentiment has oscillated quite rapidly in recent months on the heels of dramatic market intervention by the ECB and shifting views of global economic stability. Sentiment is likely to remain unstable in the months ahead as investors grapple with any number of events, from elections in Europe and the US to the end of recent monetary easing efforts domestically. While markets have rallied substantially over the past six months, retail investors are maintaining a somewhat neutral view on their allocations.

In the latest week, the Federal Open Market Committee reiterated its stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. While rates will remain low for now, the Fed will need to fend off other challenges in the months ahead, ones that could send investors racing for the beach sooner than normal. The biggest challenge for the Fed and the economy in the coming months is in the form of Operation Twist. The hope was that such actions would drive down interest rates and encourage borrowing of all forms.

Prior to the financial crisis, hedge funds were largely viewed as alpha generating, high return seeking, portfolio diversifiers. In 2008, that model came under attack from multiple angles fraud, illiquidity, and poor returns being the primary culprit. Ever since that time, the value proposition of hedge funds and alternative investments remains in question, causing some to wonder if this is a make or break year for the space. There is reason to think the environment for hedge funds and active managers is improving.

While the economy has displayed fits and starts of entering a sustained recovery over the past several years, there has been no doubt about the ability of companies to reshape their balance sheets and refocus their businesses. In the midst of first quarter earnings season, there are some concerns that the corporate hot streak will come to an abrupt end, but the reduction in earnings expectations since late last year appears to be favoring another positive earnings season.

For most of the past two years, investors have been pre-occupied with the fiscal catastrophe in Europe and with good reason. However, the relative health of the worlds second largest economy arguably deserves more headline space. A year ago, Chinas stock market led the broader emerging markets down due to pervasive inflation concerns. Official figures reached as high as 6.5%, and some reports of pork and other food price inflation reached double-digit levels. Chinese authorities were forced to slow down the pace of their economy by raising bank reserve ratios and key lending rates.

At the end of 2011, the Long-Term Refinancing Operation brought a modicum of stability to financial markets in Europe.When coupled with the orderly default of Greece, the situation in Europe is seemingly on a road to more pleasant ground. Just as soon as investors place Europe in their periphery, however, problems once again begin bubbling to the surface.In recent weeks, the spotlight has turned to Spain, where unemployment is near 24% and the government is expected to run a 5.9% budget deficit for 2012.

The debate surrounding active versus passive investment management continues to attract a growing share of investor interest. After several years of underperformance, active managers are finally outperforming their benchmarks YTD, but it may be too late. Investors, frustrated with the underperformance and higher fees, are piling en masse into exchange-traded funds (ETFs) and other low cost solutions. The time for an all-passive solution may not be right now, but active managers are undoubtedly concerned about what the future may hold.

Nonfarm payrolls and the unemployment rate headline the weeks economic data. Consensus expects another 200K+ gain in payrolls and no change in the unemployment rate. Other major economic data of note includes the ISM Non-Manufacturing index and the US trade balance. Abroad, there are important releases on tap including Q4 EU GDP and EU retail sales. Both the ECB and Bank of England meet this week, but neither is expected to adjust their key interest rates. Other central banks meeting include Russia, Australia, Brazil, Poland, New Zealand, Indonesia, South Korea, Canada, Peru, and Malaysia.

The continued march higher in oil prices is filtering its way down to consumers in a less-than-favorable way. By the end of the week, the average price for a regular gallon of gas was $3.65, 30 cents higher than the price one year ago. Consumers are all too familiar with the taxing effect of higher gas prices, particularly given the extreme run up early last year. Interestingly, the number of Google searches for gas prices recently overtook those for Greece, suggesting that the domestic economic situation is trumping consumers concern about an overseas shock.

Despite this short-term good news, the cloud hanging over Europe promises to remain for some time. As expected, the first glimpses of fourth quarter GDP reveal a region under severe economic pressure. Growth in the European Union contracted 0.3%, the first such decline since the recession. Most member countries saw their economies shrink, including Germany (-0.2%), Italy (-0.7%), and Spain (-0.3%). On the bright side, France actually surprised consensus with a 0.2% expansion.

Investor interest is acutely focused on the developed world, specifically Europe and the US. All the while, developing countries continue to be better positioned fiscally, with lower debt and better long-term growth prospects. Despite the outlook, stock markets in emerging markets are largely at the mercy of their counterparts in Europe and the US, suffering in lockstep as opposed to embracing the decoupling phase that was supposed to have begun in 2007. According to the IMF, emerging and developing economies grew 6.2% in 2011, compared to a 1.6% growth rate in advanced economies.

The week started slow, however, with a mixed personal income and outlays report from the Bureau of Economic Analysis. While consumer spending was flat in December, incomes grew 0.5% above expectations and the biggest gain since March. The lack of spending growth is concerning, but somewhat expected given stagnating wage growth. Spending to this point has largely been financed through savings, making Decembers income boost a much welcome improvement for consumers.

A thin week of economic data and renewed focus on the European sovereign debt crisis may have prompted profit taking by some investors. Arguably, the biggest development last week was the Federal Open Market Committees (FOMC) press release on Wednesday. For the first time, the central banks decision makers released forecasts for the federal funds rate and the timing for the first rate increase. In that release, the FOMC unexpectedly announced that it expected to hold rates near zero until at least late 2014. This far exceeded previously stated expectations of a mid-2013 rate hike.

Since the start of 2012, global risk markets have all but ignored the overhang of pessimism that frustrated the markets in 2011. For the most part, equity indices already surpassed their gains for all of last year. While such gains may ultimately prove sustainable, there remains a modicum of uncertainty that could rear its head quite suddenly, and quite viciously. In the meantime, an assessment of the investment landscape shows investors may have a legitimate reason for bullishness in the short term.

With economic growth stagnating, global indebtedness remaining stubbornly high, and unemployment refusing to budge, pressure on governments and ordinary citizens is mounting. Financial crises are notoriously difficult to recover from, but the longer-term sociological problems created by such severe declines in output pose a major headwind to the economy in 2012 and beyond.

Equity markets finished their first week of the New Year with positive gains, with the S&P 500 and Dow Jones Industrial Average rising 1.6% and 1.2%, respectively. Those gains, and more, occurred in the first 30 minutes of trading on Tuesday, the first trading day of 2012. From there, markets traded choppily through the remainder of the week, as lingering problems in Europe dampened risk appetites. Investors returning from holiday break received more positive news regarding the US economy, particularly within manufacturing and employment.

There are several economic indicators on tap for next week, highlighted by the third and final estimate for Q3 real GDP.No change is expected from Novembers estimate of 2.0%. Other items of note include housing starts, existing home sales, new home sales, personal spending, and the durable goods report. As mentioned previously, Wednesdays existing home sales report from the NAR will provide clarity on the size of the agencys five-year revision to home sales. This is a potentially significant event, depending on the size of the adjustment.

A multi-day summit in Brussels by European policymakers yielded an expected fiscal union between euro member countries. However, a key refusal by Britain undermined the credibility of the pact. Without unanimous agreement, the original European Union treaty cannot be altered, so a new intergovernmental agreement was created. Some question whether such an arrangement has the teeth to enforce budgetary discipline.

With markets ebbing and flowing and making it virtually impossible to differentiate up from down, it has become all the more difficult to determine what qualifies as an attractive investment. While equity markets rallied into the end of November, volatility remains well above its long-term average, causing most investors to question their equity allocations. It should come as no surprise, then, that individual investors are anything but confident in the latest rally. Macroeconomic headlines and excessive volatility are dampening even the most hardened investors faith in financial markets.

Mounting concerns in Europe and the failure of Congress supercommittee weighed on investor sentiment during the holiday-shortened week. As expected, the congressional supercommittee failed to negotiate a $1.2 trillion deficit reduction by Wednesdays deadline. The move triggers automatic cuts to the federal budget starting as early as this year. Near-term effects are mostly in the form of program non-renewals for example, the expiration of 99-week unemployment benefits, the payroll tax cut, and other Recovery Act stimulus.

It is a shortened week due to the Thanksgiving holiday in the US, but that does not mean investors should tune out. The market will turn its sights on the governments super committee, which is looking less than super. The committee looks like it will not meet its target deadline of November 23, which will likely have negative implications for financial markets. The committee was supposed to find spending cuts that would reduce the deficit by $1.2 trillion over the next decade.

It will be a busy week in the US with reports on inflation, retail sales, industrial production and housing starts. Inflationary pressure is likely to show further signs of easing in October, particularly as food costs continue to stabilize. Retail sales were quite strong in September, but gains for October are expected to be more muted. Earnings season is winding down, with quarterly reports expected from UniCredit, Dell, Home Depot, Walmart, Target, Vivendi, Dollar Tree and Gap. The only major central bank to meet this week is the Bank of Japan, which is unlikely to change rates.

Trading was volatile this week as news that the situation in Greece was not as clear-cut as originally thought sent the markets sharply lower. Those concerns eased somewhat in the last two trading days of the week on news that Greece, and more broadly, Europe, were making progress. Ultimately, it was another month of sub-par employment growth, but there were signs that labor markets remained steady, despite severe headwinds from Europe and concerns about growth prospects for the US. Although 80,000 jobs is nothing to be ecstatic about, the ability of the economy to stay out of negative is.

Economic data in the US will receive plenty of attention this week. On Tuesday, the ISM Manufacturing Survey is released, with economists anticipating continued expansion in the manufacturing sector. Wednesdays ADP private payroll employment report will offer a taste of what is to come in Fridays nonfarm payroll employment report for October. Consensus expectations are for job growth of slightly less than 100,000 and an unemployment rate of 9.1%.

Equity markets continued fighting higher, with the Dow Jones Industrial Average gaining 1.4% and the S&P 500 Index increasing by 1.1% last week. Optimism from both Europe nearing an agreement on its debt problems, as well as positive earnings reports, pushed equity markets higher throughout the week. Since the start of earnings season, slightly more than 300 companies reported quarterly earnings figures. Out of those that reported, 63.7% beat consensus earnings estimates. That is a moderate improvement from the past two quarters, but somewhat below the 65% average since March 2009.

Not only was key economic data, such as retail sales, better than expected, but also the start of earnings season brought about a number of positive corporate earnings surprises.An important caveat is that analysts earnings estimates were routinely cut over the past several weeks, leading to a lowered bar and higher likelihood of upside surprise.Regardless, markets appear pleased by the news, at least for the time being. Over the latest week, each of the major indicators, excluding consumer sentiment, came in above consensus.

A busy economic week brought much-needed relief for investors. With 75% of domestic economic reports beating expectations over the past two weeks, equity markets were able to find stable ground. Additionally, outside the US, new QE measures by the Bank of England and progress on the European sovereign debt situation bolstered investor confidence. Re-anchoring domestically, the news was largely positive across a range of data series, from manufacturing and services to labor. Similar to last year, economic data severely disappointed in the summer but is now showing improvement.

In the latest week, economic data was mixed, but news on consumer income and spending raised concerns over the health of the all-important consumer sector. Even worse, a growing number of economists are highlighting the possibility of recession. One organization, the ECRI, went as far as declaring that recession was unavoidable and warned, theres nothing policy makers can do to head it off. Such dire forecasts do nothing to bolster economic or market confidence. The ECRI has accurately predicted prior recessions, including the most recent one in 2008.

It was a difficult week from a number of standpoints, not the least of which was the growing number of downside risks that rose to the surface. A broad number of financial markets broke down this week, including copper, the Hang Seng and precious metals. Struggles in those markets came from any multitude of reasons, including the acknowledgement of slower growth ahead from the International Monetary Fund and the US Federal Reserve.

With the Fed potentially considering new easing measures this week, economists paid particular attention to last weeks inflation reports, looking for any clue that the Feds current programs are feeding higher inflation. Thus far, the Fed is in the clear, but there is budding inflationary pressure under the surface that is raising cause for concern. In August, the Consumer Price Index rose 0.4%, led by higher food and energy prices. That follows an equally strong increase of 0.5% in July. Consumer prices received a slight reprieve earlier in the summer, but that softness is dissipating.

It will be a somewhat more active week as a number of economic releases are due, including the producer price index, the consumer price index, retail sales and industrial production. Additionally, the Treasury Department is set to auction $32 billion in 3-year notes (Monday), $21 billion in 10-year notes (Tuesday), and $13 billion in 30-year bonds (Wednesday). Earnings reports to follow this week include Best Buy, Diamond Foods, and Research In Motion.

As we head into the fall, investors should prepare for a continuation of this summers volatility.While August is viewed as a challenging month for the markets, September reigns supreme as the worst month for market performance historically. Dominating the headlines this week will be an announcement by President Barack Obama on Tuesday regarding plans for boosting job growth and increasing budget savings. Across the globe, services PMIs will be released this week, and akin to the global manufacturing PMIs, declines are expected.

On Tuesday, the S&P/Case-Shiller home price index will be released. That afternoon brings the release of minutes from the August 9 FOMC meeting, during which three individuals dissented. ISM manufacturing comes out Thursday. Economists believe it will fall into contractionary territory below 50, based on recent disappointing regional manufacturing data. By Friday, the much anticipated nonfarm payroll figures for August will be released. Expectations are low, especially considering the difficult economic headwinds faced in the past month.

Equity markets faced mostly negative economic data last week for both the US and abroad, putting a quick end to the market rebound that began the previous week. In Europe, Germanys GDP slowed markedly. The regions most powerful economy expanded by just 0.1% in Q2, the slowest since early 2009 and down considerably from 1.3% in the first quarter. It was also far lower than an expected 0.5%. This in turn weighed on Eurozone growth, which expanded just 0.2%. Slower growth than the tepid levels already anticipated puts further pressure on the deficit-plagued region.

Last week, we learned the economy is continuing to struggle, but there was some slight improvement in jobless claims and retail sales. One area not improving is small business optimism. The National Federation of Independent Business reported that its Index of Small Business Optimism fell 0.9 points to 89.9 in July, representing the fifth consecutive monthly decline. Small businesses list poor sales, taxes and government regulation as their three most important problems. Consumers were also quick to echo that sentiment last week.

Volatility will be the word of the week as the US is now entering unprecedented territory after being downgraded for the first time. Postulating what happens next is complete conjecture at this point. Investors should prepare for heightened volatility for the near future. Several central banks will meet this week, including those in Indonesia, Norway and South Korea. In addition, the Federal Reserve meets on Tuesday with no expected change to its 0-0.25% fed funds rate stance. Markets will closely watch for any language about the pace of the recovery or clues about its balance sheet.

With fears of an impasse over the debt ceiling, equity markets faced a difficult week. Fortunately, leaders announced on Sunday evening that they reached a deal in principal to raise the debt ceiling. Many pundits have reiterated in recent weeks that a deal would be reached prior to the August 2 deadline, but markets and investors grew nervous over the past week. However, politicians stayed true to form. They assured the American people that, despite headlines from the past several months, Republicans and Democrats came together in the interest of their constituents to strike the best deal.

In a relatively light week of economic releases, market participants were pleased to see positive news beginning to build. Housing data in particular, excluding the existing home sales report, trended in the right direction. Housing starts unexpectedly jumped 14.6% to 629,000 in June. Strength was apparent across single- and multi-family housing units. Residential investment, an important component of GDP, will offer little support to second quarter GDP figures, but the upward momentum should put the economy on a better trajectory for the third quarter.

By early August, the US Treasury will run out of room under the debt ceiling and risks defaulting on its debt. There is growing concern, as evidenced by recent reports from Moody?s and Standard & Poor?s, that a deal will either not get done in time or will not suffice in fixing what is turning into a runaway fiscal freight train. Politicians are determined to play a quick and easy game of Russian roulette with the debt, not realizing that their attempts to undermine each other?s credibility in advance of next year?s elections are extremely dangerous.

An otherwise positive week ended in disappointing fashion but the equity markets held their gains. There were only a handful of market-moving economic reports last week, with the predominance of investors focused on the nonfarm labor report on Friday. Prior to that release, however, there was generally positive data announced on other sectors of the economy. Early in the week, the Institute for Supply Management announced that non-manufacturing activity expanded for the 19th consecutive month. Similar to the manufacturing sector, though, activity continues to expand at a weakening pace.

Economic data will rule the airwaves this week, especially the nonfarm payroll report on Friday. Economists are not overly confident that June was the month where employment growth finally kicked into high gear ? a sentiment which is supported by relatively weak initial claims reports over the last four weeks. Central bank meetings will garner considerable attention this week as well. The European Central Bank alluded to the possibility of another 25 basis point rate hike last week and there is a strong likelihood that emerging market economies will also tighten policy rates.

Personal income and consumer confidence will start the week with expectations of slightly higher numbers. On Tuesday, Case-Schiller data is expected to show moderate declines in home prices for April relative to March. The Treasury will follow its regular auction schedule this week with auctions of $35 billion worth of 2-yr notes, $35 billion of 5-yr notes and $29 billion of 7-yr notes. All eyes will be on Greece on Wednesday and Thursday, when Parliament will vote on the latest austerity plan. Greece noted that they will default if a new loan tranche is not available by mid month.

Equity markets endured six consecutive weeks of negative performance before eking out gains last week. The reprieve was welcomed but ultimately minor. Markets turned slightly more optimistic late last week on news regarding a new bailout package for Greece. Regardless of one?s opinion about the success potential of bailout packages, the uncertainty created by indecision has helped force markets lower in recent weeks. Economic data was decidedly mixed last week with some releases beating economists? expectations and others continuing to disappoint.

Bernanke gave a speech indicating that we might be facing a period of temporary weakness. He said, ?growth seems likely to pick up somewhat in the second half of the year.? Whether Bernanke ultimately turns out to be right is uncertain, but some indicators this week supported that notion. One depiction of that phenomenon is the Citigroup Economic Surprise Index, that measures the number of economic releases surprising to the upside or downside. After reaching a peak in March, the ESI plummeted, reaching a low on June 3rd. Since that point, the index gradually began to rebound.

At the start of the week, regional and national manufacturing reports showed a deceleration in the manufacturing growth rate. It was widely expected that manufacturing activity would slow after reaching a peak of 61.4 in February, but few economists realized the severity of the slowdown in May. The ISM PMI dropped from 60.4 in April to 53.5 in May. In the past decade, no other month-to-month decline was as large as the one in May. The second largest fall occurred just after September 11, 2001 (-5.4) However, at that time, the economy was already in the midst of a recession, not a recovery.

There was a limited amount of economic data released last week, and most of it turned out to be disappointing. The second revision to GDP showed the economy growing at an annual rate of 1.8% in the first quarter. Though the headline figure was unchanged, several important changes occurred in the data. Specifically, the Bureau of Economic Analysis stated that consumer demand actually rose at a 2.2% annual pace in the quarter, down from the 2.7% annual rate reported. Overall, GDP was weaker than feared in the first quarter as higher inventories and not consumer spending drove expansion.

Another volatile week resulted in the S&P 500 Index losing 0.3% and the Dow Jones Industrial Average falling 0.7%. Economic data last week continued to confirm that housing markets are sluggish and that manufacturing is entering a weak patch. Existing home sales unexpectedly fell in April. Economists expected sales of existing homes to reach 5.2 million in the month, but the actual tally for April was 5.05 million, down 0.8% from the previous month.

Investors turned away from the equity markets last week, as the S&P 500 Index fell 0.2% and the Dow Jones Industrial Average shed 0.3%. Stocks started the week in positive fashion, but an uptick in risk aversion on Wednesday weighed on markets. Market participants were caught off guard by unfavorable inflation statistics from China, a tightening of monetary policy in China and recent strength in the US dollar. At the beginning of May, the US dollar was nearing oversold territory and traders would likely capture profits in the weeks ahead. That is exactly what occurred.

A volatile week of trading resulted in the S&P 500 Index losing 1.7% and the Dow Jones Industrial Average falling 1.3%. However, those losses were tame relative to the rout experienced in commodity markets. According to the Wall Street Journal, crude oil dropped 14.7% last week, while the Dow Jones-UBS Commodity Index lost 9.1%. There was no single cause for the sudden risk aversion, but it appears that recognition of a slowing US economy, along with tighter monetary policy in developing economies, contributed to the renewed caution.

Another week of encouraging corporate earnings reports allowed the equity market to continue its recent strong run. On the housing front, the disappointing streak continued. New home sales increased from a seasonally adjusted annual rate of 270,000 in February to 300,000 in March, according to the Department of Commerce. Although the gain was sizeable at 11.1%, new home sales are mired at abjectly low levels. Homebuyers are finding favorable opportunities in the form of distressed properties, reducing the chance of a significant rebound in new home sales in the months ahead.

News of a potential downgrade to the US credit rating caused a sudden sell off in the equity markets, but positive earnings reports led to a rebound. By the end of the week, the S&P 500 index and the Dow Jones Industrial Average both closed higher by 1.3%. S&P took the unusual step of placing the US on credit watch negative, indicating that there is now a 1-in-3 chance of an outright downgrade to the US credit rating in the next two years. The announcement by S&P resulted in a severe equity market sell off on Monday morning before investors remembered S&P?s previous track record.

Earnings season brought about a week of choppy trading in the equity market, resulting in the S&P 500 index falling 0.6% and the Dow Jones Industrial Average dropping 0.3%. Economic data throughout the week was mixed, but the impact of higher gas prices is being felt across the economy. Small businesses recorded a severe hit to sentiment last month after the small business optimism index sank from 94.5 to 91.9. A host of concerns, from declining sales expectations to trepidation about the future of the economy, were culprits behind the weakening.

Over the past six months, actions by the Federal Reserve to purchase assets through its quantitative easing program played a major role in driving market prices. As the markets prepare to transition away from quantitative easing, investors are facing the prospects of a tougher market environment. The upcoming earnings season will go a long way in determining whether this recovery is ready to stand on its own.

Equity markets surged into quarter end, with the S&P 500 index rising 1.4% and the Dow Jones increasing 1.3%. For the first time since Feb the S&P 500 increased in two weeks. After hitting a trough on Tuesday morning, several positive employment reports encouraged the equity markets to move higher. As expected, manufacturing activity had a deceleration, as the ISM Purchasing Managers Index fell from 61.4% in February to 61.2% in March. Readings above 50% are representative of expansion in the manufacturing sector. Although the index fell, it is still the third highest reading since 1990.

Equity markets donned the rally cap last week as the S&P 500 index finished higher by 2.7% and the Dow Jones Industrial Average experienced a 3.1% gain. Stability in the price of crude oil and improvement in Japan lent a helping hand to the markets, as did the announcement that AT&T would buy T-Mobile. On the domestic front, investors turned a blind eye to the slew of negative economic data. Housing, in particular, experienced the brunt of the disappointment. Existing home sales offered the first piece of bad news after falling 9.6% to 4.88mln on a seasonally-adjusted annual rate in February.

Stock markets struggled in recent weeks due to a host of macroeconomic concerns, from earthquakes in Japan to uprising in the Middle East. This is causing a move in the markets that is similar, but different to what is typical during the third year of a Presidential cycle. Generally, markets rally in the first portion of the year before trading essentially flat in the second half. In the first two months, markets were adhering to this same pattern, but the aforementioned macro concerns derailed that rally. This does not mean markets will be unable to stage a recovery.

A confluence of macroeconomic events created selling pressure during the week, sending the S&P 500 Index lower by 1.3% and the Dow Jones Industrial Average down 1%. Releases on the domestic economic situation continued to show positive momentum, ranging from improvement in retail sales to a pickup in consumer credit. There was some concern about weaker consumer confidence figures and deterioration in weekly jobless claims, but it was clear last week that consumer balance sheet deleveraging continues. Retail sales for Feb increased 1% from Jan for a total increase of 8.9% in 12 months.

There is a dangerous trend developing in food and energy costs, one that threatens to derail the global recovery. Thus far, consumers are able and willing to accept higher commodity prices. With consumers still feeling the effects of the worst recession in nearly a century, though, there is only so much that people will be willing to tolerate and the second half of the year may be too far away, at least when it comes to crude prices.

Global macroecon concerns led to the sharpest weekly sell off in the S&P500 Index in three months. For the week, the S&P 500 Index was down 1.7% and the Dow Jones Industrial Average fell 2.1%. A multitude of catalysts were behind the selloff, including concerns about the situation in Africa and the Middle East, surging commodity prices, in particular crude oil, and finally, a feeling that equity valuations were moving into overbought territory. There were only a handful of important domestic economic releases last week, including several data points on housing and the state of the consumer.

In a sadly fitting tribute to the fiscal mismanagement occurring in Washington, D.C. these days, the National Christmas Tree, which stood in the same spot since 1978, was felled by high winds Saturday morning. Not to fear, park authorities had a contingency plan in place and a new tree is on the way. Unfortunately, politicians are not known for the same degree of contingency planning and last week?s budget proposals proved that we are in for a torrent of trouble.

Equity markets continue to melt higher, despite several unfavorable technical developments. The market began its recent rally in September of last year, with only a brief respite in November. Since that time, each pull back is used as an opportunity to pile more money into equities and with the Federal Reserve offering massive liquidity to all corners of the market, this phenomenon could potentially last longer than any are willing to admit.

Encouraging. Confusing. Disappointing. Mixed Bag. These were all terms used to describe the labor report for January. Ultimately, it may turn out that none of those terms are relevant and investors would be better served in pretending this report was a figment of our imaginations.

Last week, Standard & Poor?s made the decision to cut Japan?s credit rating from AA to AA-. The timing of the decision was unusual as there was no sudden event in Japan that triggered the downgrade, but S&P cited mounting debt concerns and the lack of coherent strategy by the Democratic Party of Japan as major reasons for the concern. Japan was initially downgraded from AAA status in 2001, when debt to GDP stood at 135%. With the US well on its way to that same figure, is now the time to ring the alarm bell?

Important economic data recently released concerns housing, which has provided both signs of encouragement and weakness in the past month. Existing home sales jumped 12.3% in December, to a seasonally-adjusted annual rate of 5.28mln. An uptick in mortgage rates, from a recent low of 4.17% in November, to 4.86% more recently appears to be encouraging buyers to enter the market before it is too late. Due to the strong showing in December, overall housing inventory fell quite considerably in the month, reaching its lowest point since March.

Equity markets trended higher for the seventh consecutive week, raising concerns about the potential for a long overdue correction.The S&P 500 Index was up 1.7% and the Dow Jones Industrial Average rose 1.0%. Economic data proved to be somewhat mixed, but largely supportive of the move higher in equity prices.Retail sales, for instance, which reached an all-time high in December, increased 0.6% in the month, slightly below economists? expectations for a 0.8% gain.

Last year will unequivocally be remembered as the year the sovereign credit crisis unfolded in earnest. We were fortunate that no major sovereign defaults occurred during that period, but can we hope to be so lucky in 2011?

With 2010 officially behind us, it is time to consider what risks and opportunities lay ahead for investors for 2011. Just as 2010 proved to be the year of the sovereign credit crisis, 2011 will not be forgotten as a year without its own potholes. From the economic side of the ledger, the biggest concern remains employment. Despite improving economic growth and a Federal Reserve that has shown a penchant for doing everything in its power to stimulate the economy, employment growth is virtually nonexistent since the recovery began.

For as much attention as inflation garners, it still appears to be a far off concern, for consumers at the least. Consumers should also understand that when the time for price increases does materialize, producers will be sure to make up for lost time and lost profits by funneling those increases through in rapid fashion.

According to EPFR Global, a research provider that aggregates mutual fund flows, the week ending December 8th saw investors allocate $13.7bln of new capital to stocks funds while only investing $146mln in fixed income funds. Domestic bond funds experienced withdrawals of more than $1bln. Interestingly, money market funds picked up more than $32bln in new funds, the highest total in 22 weeks. Whether this is a wise time to jump back into equity securities remains a hotly debated issue but based on several metrics, this may not be the most opportune time to increase equity exposure.

Earlier in the fall, pessimists were pointing towards a slowing ISM index as a surefire harbinger that a ?double-dip? recession was on the way. That did not happen, fortunately, and manufacturing activity has since rebounded. Several subcomponents also provided encouraging data. In particular, the employment index finished the month at 57.5, a clear-cut sign that manufacturers are continuing to hire in order to keep up with growing demand. Somewhat less positive was the prices paid index, which remained elevated at 69.5 in November.

Early indications from the weekend shopping spree suggest that it was an overall success for retailers. Perhaps even more encouraging was the news that consumers would be less reliant on credit cards for purchases this holiday season.

Now that Ireland?s domino is falling, what next? It turns out that the vultures are circling back to get another piece of Greece. Officials restated Greece?s budget deficit for 2009 to a whopping 15.9% of GDP. Couple that with recent rumors that Greece was hoping for a payment extension on its $150bln bailout and you have a recipe for further disaster. Not to be forgotten is Portugal, a country with a budget deficit of 9.3% of GDP in 2009. It may be a period of months before Portugal is forced to pay the piper, but make no mistake, eventually Portugal will face its day of reckoning.

Economic data provided a degree of cautiously optimistic news, although it was a subdued week compared to the exhaustive news faced in prior weeks. There will be plenty of important economic data to key in on this week. October retail sales will be released on Monday and economists are expecting a relatively healthy gain for the month. Inflation will return to the forefront with the release of the Producer Price Index on Tuesday and the Consumer Price Index on Wednesday.

There is no doubt that the events which transpired last week are without precedent. The long-term implications of quantitative easing by the Federal Reserve are entirely unknown. Should the Fed?s program conclude on schedule, private investors would need to step to the plate and replace the incremental demand lost from the Fed. It is unlikely private investors could replace that demand, which would lead to enormous upward pressure on interest rates.

Investors are wondering whether the recent market rally is built on a solid foundation or merely another in a long line of illusionary rallies should heed a bit of caution. Investors are largely bidding risk assets higher on the belief that the Federal Reserve will inject significant amounts of liquidity into the economy through a second round of asset purchases. This is an extremely dangerous and poor investment thesis.

Some prominent European leaders have touted the view that fiscal austerity actually supports short-term economic growth. The root of this thinking is a study by Harvard economists Alberto Alesina and Silvia Ardagna. A recent IMF report, however, questions the credibility of that study. The IMF concluded that austerity 'clearly' inhibits growth in the short term, while a fiscal consolidation equivalent to 1 percent of GDP leads on average to a 0.5 percent decline in GDP after two years, and to an increase of 0.3 percent in the unemployment rate.

Inflation is arguably not an issue for the time being, but with the Fed prepared to unleash trillions in additional liquidity, the outlook for inflation is more uncertain than ever. While yields on government bonds with a maturity between 2- and 10-years are flattening, the long end of the yield curve is widening dramatically. Long-term bonds exhibit the most sensitivity to interest rates and inflation, so this may be the first indication that inflation will pose a serious threat down the road. Investors and consumers alike should tread very, very carefully.

The National Retail Federation announced last week that it expects holiday sales to increase by 2.3 percent from last year. That is good news following a decline of 3.9 percent in 2008 and a meager 0.4 percent growth rate in 2009. In addition, consultant Challenger, Gray & Christmas estimates that the retail sector will add as many as 600,000 jobs over the next three months. That is better than the 501,000 jobs added during the holidays last year, but still well below the pre-crisis levels of more than 700,000.

Suggesting that the bond markets are in a bubble is dangerous at this point in the economic cycle. The intervention of the Federal Reserve into the government bond markets will inherently depress yields, while a lack of clarity around economic growth will encourage individuals and corporations to refrain from embracing excessive spending. This in turn could lead to stagnant growth and further desire to hold less risky assets. For now, bond investors can sleep well knowing that sometimes, just sometimes, you can have your cake and eat it too.

The determination by the U.S. government to revalue China's renminbi is another smoke and mirrors tactic to divert our attention from the true crux of the problem, a faltering economy with little hope for regaining stable ground for at least the next several years. Even if China appreciates its currency, there is no guarantee that it will provide a boost to the American economy. Jobs that were long ago outsourced to China will simply move to the next-cheapest home; they will not return to the U.S.

Is the global economic recovery about to grind to a halt? This column provides evidence on economic performance in the decades following macroeconomic crises. It finds much slower growth, as well as several episodes of 'double-dips,' as well as many instances of plain 'bad luck' that strike at a time when the economy remains highly vulnerable.

A recent paper from the Organization for Economic Cooperation and Development found that the European bank stress tests were less than stressful. This was because they only considered sovereign debt held on banks' trading books, not on banking books. The trading book of Greek banks, for example, only represents 6.7 percent of the overall Greek sovereign debt exposure on their books. The ignored banking book exposure represents the other 93.3 percent. On a cumulative basis, that translates into a sovereign exposure to Tier 1 capital ratio of more than 225 percent.

Moderate optimism began to wash over the markets last week, as the S&P 500 Index rose 3.7 percent and the Dow Jones Industrial Average increased 2.9 percent. The rally was driven by several factors, including an improvement in the tone of various economic releases, primarily the much discussed labor report and a strong announcement on manufacturing. Based on releases from last week, it became more apparent that the economy is on track for a period of slower growth and that the possibility of a double-dip is still slim.

The unemployment rate in the U.S. refuses to decline, despite a perceived recovery that began more than 12 months ago. While it is too early to declare whether structural problems are overtaking cyclical unemployment factors, it is obvious that labor markets in the U.S. are not as dynamic as in previous recoveries. Geographic immobility, economic uncertainty and a lack of skilled workers are elongating the headwinds faced by the economy, raising fears of a long and slow economic recovery.

Over the past several months, bond and equity markets have been on starkly divergent paths. Investors are growing increasingly concerned that perhaps the bond market knows something that the stock market is overlooking. One reason for this divergence is corporations. Emerging from one of the most severe recessions in the last century, companies are more than willing to hoard cash and favor a 'wait and see' approach before resuming expansion. Meanwhile, individual investors continue to sell equities in favor of fixed income securities.

The decline in productivity during the first quarter has an interesting implication for both the corporate and consumer sectors. For corporations, it is an indication that profitability will remain strong as prices increased faster than costs. The gains were 2.4 percent and 0.2 percent, respectively. From the consumer standpoint, it appears that businesses have sucked every last ounce of productivity from current employees. If that turns out to be true, then corporations will hire additional workers, bolstering spending and encouraging further hiring.

Consumers face a challenging environment in the second half of the year as stubbornly high unemployment and stagnant wages will limit their ability or desire to spend. The rapid improvement in corporate profitability should encourage hiring at the beginning of 2011, but the road will be long and bumpy. Meanwhile, a series of economic reports this week are likely to provide confirmation that economic growth is slowing.

Democrats who were previously in favor of allowing the Bush-era tax cuts to expire at the end of this year are suddenly swimming in the opposite direction, with several favoring extensions to the tax credit, given the poor economic backdrop. It is easy to find evidence to support both camps, but the simple reality is that economically restrictive policies will create a drag on growth at a time when the economy can ill afford them.

Investors found reason to cheer last week after a round of impressive earnings reports buoyed confidence. The challenge for the broader economy, however, is that companies are becoming more profitable but are unwilling to pass on those gains to their respective employees. Instead, they are stockpiling cash at the expense of employee compensation. Moving into the second half of 2010, as executives begin solidifying budgets for the next fiscal year, we could see an uptick in hiring.

Last week's reports on the Consumer Price Index and the Producer Price Index only served to confirm what everyone already knows ? any discussion of budding inflationary pressure is nave at the moment. It is too early to write off a full-blown deflationary episode. In addition to weakness at the consumer and producer levels, the rate at which money changes hands (a common means of inflation) is near its slowest pace in years. Other problems facing the U.S. are a rising personal savings rate and ever-slower demand for commercial loans.

When the crowd is zigging, it is best to trust one's contrarian instincts and zag. The ratio of bearish to bullish investors has steadily risen since early May, when concerns about sovereign stability began to unravel. In the week ending July 8th, 57 percent of individual investors reported being bearish in the intermediate term, against only 21 percent that hold a bullish stance. Investor sentiment is sitting at the lowest point since March 2009, and we all know what happened in the intervening months.

While it is easy to remain pessimistic on the state of the economy, especially following the events of 2008, the signs of a double-dip recession are simply not there yet. Slower growth is a given at this point, but this should not come as a surprise considering that it has been well-documented that previous stimuli would become a detractor to growth in the second half of 2010 and through 2011. Further stimulus packages are already being debated, even in the face of fiscal tightening by countries across Europe, as politicians face difficult battles at the polls.

Despite positive predictions for the housing market, existing home sales fell in May. This may be due to a number of first time buyers who snapped up distressed properties, requiring a longer wait between contract acceptance and closing date. At the same time, new home sales plummeted and median home sale price fell. A glimmer of hope exists in this market as home prices are in the positive over a year-over-year basis.

The resurgence in risk appetite continued apace this past week, allowing the S&P 500 index and the Dow Jones Industrial Average to return to positive territory for the year. By the end of the week, the S&P was up 2.4 percent and the DJIA finished up 2.3 percent. The recession of 2008-2009 seems to have left a mark on many individuals, however, especially those in the baby boomer generation who are inching ever closer to retirement. This is fueling a reallocation away from equities in favor of bonds and income-producing securities.

Equity indices logged solid gains this past week, with the S&P 500 index up 2.5 percent and the Dow Jones Industrial Average up 2.6 percent. The positive outcome was a result of light trading on Thursday and Friday, although it appears there is little conviction in the rally, with trading volume falling well short of the 50-day average over the course of both days. A measure of confidence from the Yale School of Management shows that individual investors are becoming disenchanted with the market, which makes them hesitant to buy equities during periods of correction.

Market forecasters are worried about the state of the Chinese real estate market, with one publication after another declaring that an asset bubble is only moments away from popping. Clearly the recovery in the Chinese real estate market is impressive, perhaps curiously so, but the dynamics of the Chinese market indicate that an asset bubble is nowhere to be found?for now. From an affordability standpoint, the price-to-income index is on the rise, but well below the levels seen in the U.S., the UK and even India.

Consumers shook off the cob webs and made an exceptional comeback over the past 12 months. They are still tenuously overextended, however, and are unlikely to provide a necessary boost to economic growth in the coming quarters without serious improvement in wage or credit growth. The household debt ratio remains above the long-term average, but is returning to a more appropriate level and indicates that the consumer balance sheet is slowly being realigned. Fortigent also comments on government responses to sliding stock prices, and the week ahead.

Despite the $1 trillion rescue package, Greece and other small European countries will probably still default on their debts. As it stands now, Greece faces two scenarios: default or endure years or even decades of deflationary growth. The root problem for the PIGS is lack of competitiveness within the euro area - an inevitable consequence of the one size fits all interest rate policy. Even if the PIGS governments could slash their fiscal deficits, the lack of competitiveness within the euro area calls for years of relative deflation.

News was generally supportive of equity prices last week following the decision by European countries and the IMF to provide financial support to the euro area. Fears of a 'double-dip' recession are beginning to creep into popular lexicon, however, after the possibility was raised by the likes of economist Nouriel Roubini and Research Affiliates chairman Rob Arnott. Those fears appear unfounded in the near term based on the recent Philadelphia Fed survey and the current steepness of the Treasury yield curve.

Last week's sell-off clearly resulted from a buildup of tension in technical factors coupled with overriding concern about the unfolding debacle in Europe. Numerous signs were flashing the caution light prior to last week. On the other hand, even though the technical factors were ready for a breakdown, a majority of the economic releases from last week suggest the recovery is still in its infancy. Investors should brace for another volatile week following the announcement that Europe will ready nearly $1trillion to bolster its capital markets.

Last week, Standard & Poors downgraded the credit ratings of both Greece and Portugal. Citing the blatantly obvious, S&P pointed to Greece?s 'political, economic and budgetary challenges' as the reason for the downgrade. More troubling for holders of Greek debt was the revelation that S&P only expects a recovery between 30 percent and 50 percent of capital should Greece be forced to restructure its debt. The recently finalized bailout from the IMF and European Union will stave off those concerns for the time being, but Greece will not be out of the clear for another several years.

It is clear that more and more people are becoming cautiously optimistic about the recovery unfolding around the globe, but a number of risks remain unresolved and will likely stay that way for years to come. That should provide plenty of fodder for both economic pessimists and optimists. Investors should brace for a bevy of news from every angle this week. The Federal Open Market Committee will meet on Tuesday and Wednesday to discuss the latest state of the economy. Expectations are for the fed funds target rate to remain within a range of 0 percent to 0.25 percent.

The world is entering a period of rapid aging unlike any we have previously seen. According to a recent report by Neil Howe and Richard Jackson there are several key implications due to an aging population. As populations age, decreased mobility and adaptability will restrain economic growth and entrepreneurship, leading to higher public deficits as governments shoulder a greater percentage of health and retirement costs. Fortigent also examines the impact of the SEC investigation of Goldman Sachs on equity markets, and the week ahead.

It may be convenient to assume that a revaluation of the Yuan would lead to a readjustment of the US trade balance, but it is more likely that production would merely shift to the country with the next lowest costs. Gains in Chinese imports in the early 90s came at the expense of imports from other countries. In addition, politicians fail to recognize that many manufacturers in the US import production inputs from China, and so a currency revaluation would directly affect their ability to remain competitive. Fortigent also comments on rising equity markets, and the week ahead.

Global equity markets closed out the quarter well, with all major world indices except China posting positive quarterly performance. Earnings improvements, dramatic P/E expansion and a slowly recovering global economy all contributed to the run-up. Several potentially dark clouds, however, float across an otherwise sunny investment sky. One is simply a function of the extended market rally and corresponding expansion in market P/E ratios. By several indicators, the market seems to be veering into over-valued territory. Fortigent also comments on muted but real GDP growth, and the week ahead.

As much as we would like to assume that a 30 percent peak-to-trough decline in home prices returned housing prices to fair value, that may not be the case. Housing markets are proving that an endless supply of liquidity can only mask underlying weakness for so long. Without jobs, no amount of principal forgiveness or interest rate reduction will allow homeowners to suddenly begin paying their mortgages again. Fortigent also comments on the IMF's plan to back Greece's debt, the new Federal Reserve public relations tour and the week ahead.

Equity markets posted gains last week on news that inflation was muted and that the Federal Reserve would continue holding down interest rates at low levels for an extended period. The core consumer price and producer price indices rose just 0.1 percent in February, and the Fed's target federal funds rate remained between 0 and 0.25 percent. Leading economic indicators, however, have taken a weaker turn in recent weeks. Negative contributions from a shorter manufacturing workweek and falling stock prices were the biggest detractors.

A number of reports released in the past several weeks confirmed that global trade is rebounding sharply from its 2008/09 lows. Relying on exports to drive economic growth is a perfectly plausible strategy, but final demand in many of the developed economies is unlikely to return to its previous highs in the near future. Maxey also examines the failure of small businesses to join the recovery, and the week ahead in economic news.

The Federal Reserve Beige Book confirmed that the economy shows signs of expansion, but that labor markets show only tentative signs of improvement. The S&P 500 went up 3.1 percent and the Dow Jones Industrial average increased 2.3 percent after last Friday's employment figures were not as bad as expected. Real estate activity is picking up, but officials are still apprehensive about what will happen when the home-buyer tax credit expires at the end of April. Maxey also looks at this week's upcoming events and releases.

While some in the financial press blame credit default swaps for Greece's fiscal woes, the impact of CDS on the country's finances is actually quite small. Greece racked up massive amounts of debt long before CDS even existed, and net CDS have hardly moved as the Greek financial crisis has spiraled out of control. Maxey also comments on rising equity prices, improving GDP growth, new restrictions on short selling, declining housing figures and this week's upcoming data releases.

Equity markets settled down tremendously this past week after a week of volatile trading, posting a 3 percent gain for the S&P 500 index. Subsiding fears about the impact of Greece on global markets support market gains. The CBOE Volatility Index fell in February to 20 from a high of 27. Maxey also comments on mortgages, inflation, and upcoming data releases.

Equity markets were still oversold based on a number of momentum and sentiment measures last week as buyers pushed the both the S&P 500 and the Dow Jones Industrial Average indexes to volatile 0.9 percent gains. Headlines this week should center on Greece's bid for explicit financial support from other Eurozone members, as well as a slew of new economic data.

Fortigent senior analyst Chris Maxley says equity markets are quickly approaching oversold territory. The S&P 500 lost a mere 0.7 percent last week despite heightened market volatility. Sovereign credit issues continue to loom over markets, and improved earnings are still not inspiring traders.

This is a review of last week?s market activity and economic data announcements, with a focus on the GDP announcements from the UK and the US.

?Some pundits saw fit to blame China for the recent pullback [in US equity markets], as a result of the monetary tightening occurring in that country, but such an accusation is unfounded in our opinio

The problem for the Treasury moving forward is twofold. For one, interest rates have nowhere to go but up. At the end of 2009, the average interest rate on all outstanding US debt stood at 3.3%, a f