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July 16 2014

Germany may have clobbered Brazil in the World Cup quarterfinals last week, earning a chance to become the first European team to win the event in Latin America, but things back home in Europe weren’t quite so rosy.
First, a sizeable Portuguese bank startled investors when it failed to make an interest payment on its short-term debt. Investigators have found financial irregularities at the bank’s parent company and don’t believe the problem is systemic, according to Barron’s.

“…but jittery investors didn’t hang around to find out the true picture. The missed bond payment sparked an indiscriminate selloff among financials across Europe. Banks in countries at the periphery of the euro zone were particularly hard hit, but the ripples washed over markets at the core, too.”

In addition, Reuters reported a Spanish bank cancelled its bond offering and Greece was only able to place one-half of its debt issue as a wake of uncertainty about Europe’s financial system buffeted investors.

Worries in Europe intensified when industrial production numbers came in below expectation. In Germany, production fell by 1.8 percent. In France, it was off by 1.7 percent, in Britain by 1.3 percent, and in Italy by 1.2 percent. Weak industrial production is a sign the European economy is struggling to find solid footing. By the end of last week, European financial companies had lost 3.7 percent of their value and the Stoxx Europe 600 Index was down 3.2 percent.

U.S. markets moved lower last week, too, as reminders of Europe’s banking crisis renewed investor fear. Barron’s suggested investors’ skittishness also had something to do with the fact that Standard & Poor’s 500 Index has not experienced a 10 percent correction for more than two years. Corrections typically occur about every 25 months helping to, “…wipe out some of the frothy sentiment, reset expectations, and prepare the way for another move higher.”

  • Data as of 7/11/141- WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0096.5%17.5%0.14316.9%5.9%
  • 10-year Treasury Note (Yield Only)2.5N/A2.62.93.44.4
  • Gold (per ounce)  1.3 11.13.9-58.012.6
  • DJ-UBS Commodity Index-3.03.51.2-6.62.7-1.1
  • DJ Equity All REIT TR Index0.917.19.311.224.69.5

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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