News Brief from AXA Equitable: Highlights from recent notable market news reports
August 9, 2011
Standard & Poor’s recent decision to downgrade U.S. Treasurys has heightened the fear that the U.S. economy is heading back into recession, but recent commentary suggests otherwise (“The Global Economy Is Still Growing,” by Eric Chaney and Jean Sorasio, Aug. 8, 2011, column in The Wall Street Journal).
“We believe that the economic slowdowns in the United States and Europe will not last, though they do justify downward revisions to excessively optimistic economic and corporate-earnings forecasts,” wrote Chaney, AXA Group chief economist, and Sorasio, AXA’s chief investment officer, adding that the S&P downgrade “does not add anything to what we already knew.”
Fear of recession, however, has rattled the markets perhaps because of the threat that such fears can become self-fulfilling (“A Wave of Worry Threatens to Build on Itself,” by Motoko Rich and Nelson D. Schwartz, Aug. 9, 2011, The New York Times).
“Everybody gets into this hangdog demeanor with respect to economic expectations,” Paul Laudicina of consultant A.T. Kearney told the Times. “People sit on their wallets because they feel like everything is going to get worse, and things get worse because people are sitting on their wallets.”
At least one longtime observer of financial markets sees a positive in the latest surge in bonds and declines in stocks (“Don’t Panic About the Stock Market,” by Burton G. Malkiel, Aug. 8, 2011, column in The Wall Street Journal).
Malkiel, professor emeritus of economics at Princeton University and author of “A Random Walk Down Wall Street” (10th edition, W.W. Norton, 2011), wrote: “My advice for investors is to stay the course. No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future.”
Calling the U.S. “the most flexible and innovative economy in the world,” Malkiel wrote that the run-up in bonds and drop in stocks presented an opportunity, assuming a longer-term time horizon, to rebalance an investment portfolio in favor of stocks.
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