Hennion & Walsh Trending

During a week when the majority of the East Coast is still recovering from the devastating effects of Hurricane Irene, the market warmly received some good economic news for once.  However, as has been the case previously, the headline numbers, upon further review and dissection, may not be as positive as initially reported and received.

For instance, according to a report released by Case-Shiller today, U.S. home prices rose 1.1% in June of 2011 compared to May, according to the latest S&P/Case-Shiller 20-city composite index. Compared to the first quarter of 2011, prices actually rose 3.6%. Further, home prices in nineteen of the twenty top U.S. cities included in the index were up in June and none of the twenty cities made new lows in June.   Upon further inspection, of the Case-Shiller data, even after the 1.1% gain in June, home prices are still down 4.5% on a year-over-year basis.  Additionally, some of the increase can likely be attributed to typical seasonal price increases generally observed during this time period each year.  However, any price increases that are not directly associated with federal tax credits show some promise with respect to the overall housing market recovery.  We will have to wait until the Fall/Winter selling season to see if this short-term positive trend continues and is sustainable.

On a similar note, the Commerce Department reported earlier this week that consumer spending rose much more than expected in July of 2011, as spending jumped 0.8%.  This marked the biggest gain single monthly gain in five months and perhaps suggests that consumers may be starting to feel comfortable spending again.  However, this data did not take into account the month of August when stock market turbulence went into overdrive and consumer confidence suffered.

Speaking of consumer confidence, to counteract any potential short-term economic recovery momentum from these two positive reports highlighted above, the Conference Board’s measure of consumer confidence in the United States fell to a two-year low of 44.5 in August of 2011.  The consensus forecast was 52.0.  Although consumer confidence is a lagging indicator, the low reading did not surprise me, and I believe is an accurate assessment of the collective mindsets of consumers at present, given all of the volatility that we saw in the stock market during the month of August.

Hence, many headwinds still persist for the U.S. economic recovery and we expect slow GDP growth for the short-intermediate term future.  As a result, we, at Hennion & Walsh, still believe that investors would be wise to revisit their asset allocation strategies with their financial advisors and look to incorporate a wide range of asset classes, such as Domestic Equities, International-Developed Market Equities, International-Emerging Market Equities, Fixed Income, Alternative Investments and Cash & Cash Equivalents, as appropriate, to help ensure that their portfolios are structured to both accommodate an economy leaning towards slower growth and to weather anticipated periods of further market volatility.