September 30, 2011

The U.S. stock market ended another volatile week with the S&P 500 closing down at 1,131.  We saw the SP 500 rally significantly on Monday, and to a lesser degree on Tuesday.  This was followed by a large drop on Wednesday, a measured rise on Thursday, and another large drop today.  The week as a whole has now ended virtually where it began – 1,131 versus 1,136.  While we are often seeing large swings on a day-to-day basis, we still have not seen a breach of the early August low noted in my last e-mail update.  Third quarter earnings will start trickling out in the next 10 days, but the majority will be released in mid-October.  We will have to wait to see whether real earnings come in above or below expectation and how this news affects the markets.

The news out of Europe continues to wag the tail of the U.S. stock market.  Much of the focus is on Germany and how the German government will react to the sovereign debt developments of weaker European nations.  Germany’s export market was around 20% of GDP prior to EU integration.  It is now around 40%, with most of the growth coming from EU partner nations.  Germany has benefited greatly from the European common currency and Euro zone agreements.  If the Euro were to unravel then Germany would get hit harder than many other European nations.  The German government understands the ramifications of Euro dissolution and is working to prevent any unraveling of the current system.  While the average German taxpayer does not appear to have much interest in helping economically weaker countries in the Euro zone, the government and much of the business community are working towards preservation of the current system.