A Collective Sigh of Relief

Last week, the U.S. stock market had its best one week performance in the past two years, ending up nearly 6% for the week. It was a rally inspired in large part by European officials successfully kicking the Greek debt crisis down the road. Most economists believe Greece will still default, but the latest measures buy more time.

The global focus now shifts to our federal debt ceiling. Congress is trying to come to an agreement on spending cuts in order to raise the debt ceiling. So far, politics is getting in the way. Most experts agree that failing to raise the debt ceiling would be hugely disruptive to global financial markets. We keep our fingers crossed that common sense prevails and an agreement can be reached well before early August (the date a technical default would occur).

Last week we saw surprisingly good economic data. Manufacturing showed a better than expected rebound. Many believe the poor May data was a result of temporary issues such as the Japan natural disaster. The employment reports are released this week as well as the Institute for Supply Management’s Non-Manufacturing survey. We are eager to see if upcoming data releases confirm the “temporary soft” patch theory. If economic releases continue to surprise to the upside, we could see the equity markets move higher.

We continue to keep protective stop-loss orders on a large percentage of our equity holdings. This bull market is getting a little “long in the tooth” and there are a number of headwinds to be concerned about. Taking on a lot of risk at this stage is not warranted in most situations. However, maintaining target asset allocations is still appropriate provided you have some downside protection. Trailing stop-orders allow you to keep a “floor” under investment holdings. Last week’s rally allowed us to bump our stop orders up as our positions moved higher. We will continue to do so if markets keep moving higher.