chart courtesy of CNNMoney

The effects of the European debt crisis on the U.S. stock market are undeniable. The following article outlines what you need to know and what the outlook is for investors. 

Market’s biggest risk? Duh. It’s Europe.

by Hibah Yousuf
visit CNNMoney to view the article

NEW YORK (CNNMoney) — It’s been on and off the back burner for a year and a half, but the European debt crisis is finally nearing a boiling point.

In fact, more than 80% of the experts surveyed by CNNMoney agree that the money problems across the Atlantic are the most challenging hurdle for stocks, which have been struggling to claw back from the lows they hit earlier this month.

“Europe’s debt crisis is the No. 1 risk facing the market right now,” said Fred Dickson, chief market strategist at D.A. Davidson & Co. “Each step made toward solving the sovereign debt or bank reserve issues seem to raise new question, and the news suddenly changes from being very negative to very positive and vice versa.”

Investors first became troubled by the eurozone’s fiscal woes in early 2010, as worries about Greece defaulting on its debt spread to the other so-called PIIGS, including Portugal, Ireland, Italy, and Spain.

Policymakers were able to ease those concerns with bandages of bailouts and austerity measures, and events like the Arab Spring helped distract investors, at least temporarily. But the crisis continued to escalate and has gripped investors’ attention for months.

Europe’s debt crisis: 5 things you need to know

Lately, every time any incremental progress has been made toward solving Greece’s debt problems or the spreading European crisis, investors react with a surge of optimism and stocks rally.

But when political conflict or rating downgrades take over the headlines, it’s like splashing cold water on that optimism and stocks tumble.

Amid all the mood swinging, the S&P 500 has mostly been moving choppily sideways between 1100 and 1200.

“If we see some sort of plan or deal that settles Europe’s issues, that will relieve a lot of the uncertainty that markets hate [and] stocks will be able to break out of the range to the upside,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.

But that may still be a ways off. Late Tuesday, Slovakian lawmakers rejected a plan to overhaul the European stability fund. Slovakia was the last of the 17 eurozone countries to vote on changes to the fund, and the only country to reject those changes.

Even a Greek default, which is now widely expected, would help ease tensions, he added.

“With all the negative priced into the market, a default by Greece wouldn’t be the end of the world,” Detrick said. “In fact, it could be a potential positive to get some uncertainty out of the way.”

CNNMoney survey: Where the markets are headed

Investors would breathe an even bigger sigh of relief if European leaders announce a plan to recapitalize the banks that have exposure to Greece and other debt-laden countries.

“What we want to see is essentially what would be a TARP fund to finance and isolate the bad assets at banks, like Belgium is doing with Dexia,” said D.A. Davidson’s Dickson.

Last weekend, the leaders of Germany and France, Europe’s two largest economies, said they’ve agreed on a “comprehensive package” of measures to address the eurozone sovereign debt and banking crisis, but were tight-lipped about the details. The plan is expected to unveil at the G20 meeting in Cannes Nov. 3 and 4.

Meanwhile, European Commission president Jose Manuel Barroso is expected to announce his own recapitalization plan Wednesday afternoon.

As long as the risks of a contagion are contained, Europe’s debt crisis should move out of the limelight, allowing investors to focus on the U.S. economy and earnings. But that doesn’t mean it won’t creep back in later.

“We’ll be talking about Europe for the next five years probably,” said Dickson. “For the situation to really abate, there need to be signs of better economic growth in southern Europe — Greece, Spain, Italy and Portugal.” 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by Truthout.org

A broad U.S. stocks rally sent the Dow industrials to a 13-month high on Monday, after the Group of 20 pledged to keep aid flowing to the world economy, strengthening investors’ desire for risk.  The following article from the Deseret News discusses in more detail how the agreement boosted global stocks.

Dow hits highest level in a year
Associated Press

NEW YORK - The Dow Jones industrial average stormed to its highest level in more than a year Monday as a falling dollar boosted prices for commodities including gold and oil. Stocks also jumped as investors grew more confident that governments around the world will keep interest rates low to help the global economy.

Energy and materials stocks led the market higher. Major indexes rose 2 percent, including the Dow, which jumped 200 points for the second time in three days, to its highest level in 13 months.

News that the Group of 20 countries will keep their economic stimulus measures in place signaled to investors that rates will remain low. With U.S. rates near zero, the G-20 news lessened demand for the dollar.

Investors see the dollar as weaker than other currencies, and so they’re using it for what’s known as “carry trade,” to finance purchases of investments in other countries. That trend takes the dollar down further when those purchases are made.

But some analysts are questioning the markets’ moves, and warn that stocks and other investments could suffer big losses if the dollar were to turn higher.

Still, many investors like a weaker dollar because it helps U.S. exporters by making their goods cheaper to overseas buyers and giving the companies a boost when they convert profits from abroad to dollars.

The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell to its lowest level in 15 months. The dollar rose last year and early this year but the index has been sliding for the past eight months since major stock indicators bounced off 12-year lows. Investors, although they’ve been basing most of their buy or sell decisions on the economy, have also been following a pattern of funneling money into stocks when the dollar weakens and pulling it out when the currency rises.

Commodities prices, meanwhile, tend to rise when the dollar is down, so gold topped $1,100 an ounce. Crude oil rose $2 to settle at $79.43 per barrel on the New York Mercantile Exchange, helped in part by Tropical Storm Ida, which threatened the Gulf of Mexico.

Energy and materials stocks rose along with commodities prices, and investors’ enthusiasm for those stocks spilled over to other industries.

Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, said the strength of the carry trade is giving an artificial lift to a range of assets, including stocks.

“There’s cheap money that’s going to be pumping its way into the system,” he said. “That money is finding is home in the currency and commodity markets.”

According to preliminary calculations, the Dow rose 203.52, or 2 percent, to 10,226.94, its highest finish since Oct. 3, 2008. The index rose as high as 10,228.23, topping its previous 12-month trading high of 10,119.46 set last month.

The broader Standard & Poor’s 500 index rose 23.78, or 2.2 percent, to 1,093.08, its sixth straight advance. The Nasdaq composite index rose 41.62, or 2 percent, to 2,154.06.

Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion Friday.

photo by Philip Klinger

Third Quarter 2009 will be remembered as one of the most eventful periods in stock market history. One year has passed since the weekend that shook the foundations of Wall Street and the global financial system. Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity, and AIG was taken over by the U.S. government. Almost two years have passed since the Dow Industrials hit its all time peak of 14,164.

Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism looking forward.

The following article from The Simple Dollar discusses the stock market rebound and why we are optimistic.

Since mid-March, the S&P 500 is up almost 58% and the Dow Jones Industrial Average is up almost as much. If you opened your retirement savings at the end of the first quarter this year and looked at the numbers with a cringe, it’s likely that if you looked at the numbers right now, you’d feel significantly better.

Why the big rebound? To put it simply, the greater world finally realized that the only thing we had to fear was fear itself. The economy didn’t collapse. Instead, we just find ourselves in the middle of - and perhaps moving towards the later stages of - a rather strong recession.

Naturally, as the economy begins to slowly come out of a recession, the stock market goes gangbusters. Companies are beginning to reawaken and slowly increase production, a radically different picture than the massive cost cutting of the past year. Unemployment is somewhat stable - it might go up a little more, but it’s no longer on the rocket ship that it once was.

In short, we’re getting through this and we see sunlight at the end of the tunnel.

What does this mean for you and me, as small individual investors? Does this mean we should convert all of our investments into stocks and ride the rocket ship?

To put it simply, no, it doesn’t.

Hedging your long-term investments on what you think the stock market (or any investment market) is going to do in the short term is called market timing, and it’s never a good idea.

My philosophy is simple, and it’s one that was taught to me by many, many wise investment writers and investment books: unless you’re a day trader or spend a significant amount of time daily studying the stock market, you’re a long term investor, and long term investors have nothing to gain from trying to time the market.

Simply put, the vagaries and complexities and huge sums dealt with on the stock market each and every day, with so much insider information floating around and individuals playing all kinds of manipulative gains, plus the total uncertainty of day-to-day world events (if you recall, for example, 9/11 was wholly unexpected), makes it a very unsafe place for the typical person trying to save for retirement or for another long term goal. Instead, their reward is to simply look at the stock market as a long term place to put their money for a long term investment with a payoff date more than ten years down the road.

It’s all about your goals and your risk tolerance. It has nothing to do with what’s going on today, tomorrow, or next week.

Don’t let yourself be swayed by huge positive returns in the short term - or huge negative returns in the short term, either. Just stay the course with what you’re doing. If you find that the stress of such swings makes you nervous, redirect your future contributions to something with lower risk, like bonds.

Otherwise, just let things ride. Tomorrow might bring a huge unexpected event that we can’t see coming - or that some CEO is keeping under wraps for now. Given time, the stock market will correct itself from that, but over the short term, it’s basically little more than gambling unless you have the time and resources to devote yourself to truly careful study - or you’re investing with a small sliver of your portfolio that’s there solely to play around with.

Photo by iStock

Paragon Wealth Management is hosting a webinar tonight called, “What is Happening with our Stock Market and Economy?”

Below are the instructions to join the webinar this evening, March 3 from 6:15-7:00 MST. When you call the number, you will be prompted to enter an access code, which is below. Join the web part of our meeting tonight by clicking on the link below.

Step 1:

https://www2.gotomeeting.com/join/466802838

Step 2:

Dial 213-286-1200

Access Code:  466-802-838

Audio Pin:  Shown after joining the meeting

Meeting ID:  466-802-838

The webinar will be muted during the presentation. You will be able to make comments and ask questions at the end.

Call us at 800-748-4451 if you have questions or need assistance.

photo by Bob Jagendorf

Articles like the one from the Deseret News below are everywhere in the media today. Dave Young, President of Paragon, commented about the situation.

Yesterday was an ugly day in the market. It was the worst day in seven years for the Dow Jones Industrial Average. The bankruptcy of Lehman Brothers combined with the sale of Merrill Lynch combined to put the market in a very bad mood. Waiting in the wings with more potential negative dramas are AIG and Washington Mutual.

Based on historical numbers, this bear market is probably in the late stages.

Since last October the Dow Jones Industrial Average has dropped by -23%. It has taken a painfully long 342 days to grind its way down this far. We hit market lows back in July and now we are back just below those lows.

Historical median numbers for the 33 bear markets since 1900 are a -26.9% loss over 363 days. The last five bear market bottoms have occurred between August 31st and October 19th.

Our quantitative models are mixed right now.

While they aren’t flashing that we are at a bottom yet, they do indicate that we are close. Our advice at this point is that it is too late to sell, but also too early to buy. In other words, in our opinion it doesn’t make a lot of sense to sell at this stage of the market downturn.

Likewise, we may not have hit the absolute bottom yet, so we wouldn’t recommend taking new positions until a solid bottom is put in place and our indicators start recommending buying.

Our advice at this point is to simply hold your current positions.

No one knows what a reshaped Wall Street landscape will look like, but experience tells us that those who remain calm and make rational decisions with an eye on the long term are those who will most likely weather the current uncertainty.

If you are one of our clients, then your investment plan was put together with the long-term in mind. If you believe your circumstances have changed, please call our office and we will arrange a review and reassessment. In the meantime, do not let short-term market difficulties undermine your long-term rational planning.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this article has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this article constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Financial meltdown — Dow’s plunge is worst since 9/11

NEW YORK — Mighty investment banks were laid low. Stocks put in their worst performance in seven years. About $700 billion was washed away on Wall Street.

The crisis set in motion more than a year ago by a series of bad mortgage bets produced its most devastating day yet Monday, leaving investors to wonder whether anywhere was safe for their money.

Capping a tumultuous 24 hours that redrew the American financial system, Lehman Brothers filed the largest bankruptcy in American history, and a second storied bank, Merrill Lynch, fled into the arms of Bank of America.

The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks.

About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.

It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.

“We are in the middle of a deep, dark recession, and it won’t end soon. Here it is, and it is pretty nasty,” said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ.

And the fallout was far from over. American International Group, the world’s largest insurer, was fighting for its very survival: New York Gov. David Paterson moved to allow the company to tap one of its subsidiaries for an emergency loan.

“AIG still remains financially sound,” Paterson said, even as the company’s stock tumbled almost 60 percent. Almost $20 billion was wiped off AIG’s balance sheet on Monday.

In Washington, Treasury Secretary Henry Paulson, who refused to toss a financial lifeline to Lehman, was unapologetic as the Bush administration signaled strongly that Wall Street shouldn’t expect more rescues from Washington.

The American people should remain confident in the “soundness and resilience in the American financial system,” Paulson told reporters at the White House.

Six months ago, Paulson moved to prevent the collapse of Bear Stearns, brokering a deal for JP Morgan Chase & Co. to buy the firm at a fire-sale price with Federal Reserve backing. Earlier this month, he stepped in to help the government seize Fannie and Freddie in hopes of reversing the housing and credit crises.

But Monday, Paulson said he “never once” considered it appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers, which was saddled with $60 billion worth of soured real estate holdings.

President Bush also tried to calm jitters. “Adjustments in the financial markets can be painful, both for people concerned about their investments and for the employees of the affected firms,” the president said. “But in the long run I am confident that our capital markets are flexible and resilient and can deal with these adjustments.”

Paulson, making a rare appearance before reporters in the White House briefing room, also sounded notes of optimism.

“What we are going through in the short term doesn’t make anything easier,” he said. “But in the longer term, it’s going to make things better, because we’ve got excesses we need to work through.”

Paulson said he is taking Monday’s stock tumble as a good sign — because the fall was less-severe than expected and occurred in a relatively orderly way.

The Dow industrials dropped 504.48 points to close at 10,917.51, the first time since July they have finished under 11,000. It was the sixth-largest point drop ever and the worst since Sept. 17, 2001.

In percentage terms, the fall for the Dow on Monday was its worst since the summer of 2002. The index has shed nearly a quarter of its value since its record high last October.

Broader stock indicators also fell. The Standard & Poor’s 500 index lost more than 4 1/2 percent, and the Nasdaq composite index lost more than 3 1/2 percent.

Financial stocks fell as investors worried about the strength of banks’ balance sheets. Washington Mutual Inc. 27 percent to $2 a share, while Wachovia Corp. fell 25 percent to $10.71, its biggest decline since July 1980.

While Lehman Brothers was filing for Chapter 11 and AIG was scurrying to find financing to stay afloat, Merrill Lynch was avoiding a similar fate with a $50 billion transaction to become part of Bank of…

Visit www.desnews.com to read more…

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Contributing: Jeannine Aversa, Ieva M. Augstums, Rachel Beck, Tim Paradis, Ellen Simon, Vinnee Tong, Stephen Bernard, Emma Vandore and David Pitt, Associated Press; Joseph Fineman, Bloomberg News