Reliance Investment Management

Markets across the globe closed at their year lows for the week ending June 1, 2012. 

In the USA, the S&P closed at 1,278 as all of the economic reports  released this week reported the domestic economy is growing at a rate that is slower than what was expected by economists across the board.  18 out of the 21 economic reports came in weaker than expected.

The employment report released by the Department of Labor reported only 69,000 jobs were added in the month of May and this report  hit the markets hard on Friday as markets opened 2% down and never recovered.  The Dow, Nasdaq and S&P 500 all finished down more than 2% for the day.  All three markets also closed at their lows.

The S&P 500 has now given up all of it’s gains for 2012 as the chart below shows:

(Click on Image of Chart for a Bigger Picture)

For the first four month of 2012, the USA economy had been growing at a rate that was greater than economist expectations.  The growth in the economy along with the record profits of US companies had provided an excellent lift to equity prices across the board.  Also, Apple stock at times was almost single handily propelling  all of the indexes higher in the first three months of the year.

However overseas, several European Countries have now fallen into a recession over the past two months.  Also, China has been reporting slowing growth for the past 4 months with the most recent economic numbers out of China reporting the weakest results of the year.  This has effected not only the outlook for China, but also the outlook of the Commodity producing Nations of Brazil, Australia & Canada who are all also reporting slowing economic growth.

We have talked about a Correlated Economic World and a Correlated World Stock Markets on earlier posts.  It is apparent that Market participants are determining that if the European, Asian and emerging economies are going to enter a slow growth and/or recessionary period of time then more than likely the USA economy will not escape a slower level of growth and/or a recession of some type in the near future.

Last week we reported that our analysis had noted that Gold had been the only positive performer out of every market and sector that we follow and that we expected Gold to outperform over the next few months.  Below is a chart that shows the rise of the spot price of Gold for Friday, June 1, 2012.  Gold went up over 4% on Friday – it’s best one day performance in over a year.