Under the Surface

July 29th Weekly Market Update

Conditions have stopped worsening, and Europe’s economy may be stabilizing after a period of rapid economic deterioration. However, the deep-rooted negatives that lie not far under the surface may disappoint those expecting steady improvement. As we have all year, we continue to believe U.S. stocks will outperform their international peers.

Stocks in Europe have bounced about 9.7%, measured by the performance of the MSCI Europe Index in dollars, from their low point of a little over a month ago. This is ahead of the gain of 7.5% in the U.S. stocks in the S&P 500 Index over the same period. Several recent surveys and economic data points appear to have renewed a sense of optimism over Europe’s economic future and lifted European stocks. Last week, four of these grabbed investors’ attention:

  • France emerged from recession in the second quarter. French Finance Minister Moscovici predicted that France’s recession ended in the second quarter of 2013 with economic growth of +0.2% after declining in three of the prior four quarters.
  • Spain nearly emerged from recession in the second quarter. The Bank of Spain announced that in the second quarter of 2013, Spain’s economy contracted by only 0.1% as the pace of deterioration slowed from the -0.4% pace of the prior seven quarters.
  • The European PMI rose above 50 in July. The Purchasing Managers’ Index, an economic indicator made from monthly surveys of private sector companies, climbed to 50.4 points in July. This marked the first time the index rose above 50, the threshold between contraction and growth, in 18 months.
  • Consumer confidence improved. Germany and the United Kingdom produced strong consumer confidence readings for the second quarter. Although the consumer confidence reading for Greece was low, it rose seven points between the first and the second quarters of the year, registering the largest improvement of any of the more than 50 countries measured.

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