Europe's Situation Worsens

With Greece a few weeks away from running out of cash and with unemployment at 25.10% a deal must be reached soon to unleash more aid for the country.  Greece is just one of many problems  Europe is facing, for over a year the zone has been experiencing a rise in unemployment which is currently at 11.40%.  Italy has seen its unemployment rate rise to 10.7% over the last year and Spain is struggling at 25.02%.  Portugal has also experienced rising unemployment currently at 15%  and Ireland's has also risen with rates at 14.8%.  Poland has improved a bit yet its unemployment is at 12.4%, the U.K. and Germany have also shown some signs of improvement with rates below 8%. 

The European scene has affected domestic companies in the U.S., Ford (F) has been feeling the heat, for the past 5 years car sales have fallen.  Not hard to believe given that some European countries have seen their unemployment rates rise for the last 5 years straight.  Ford plans to close down plants to handle the lack of demand one of them in Belgium.  The European recession is strong and the debt crisis is no where nearly fixed, investors must be prepared for the repercussions and panic that this may continue to bring to markets. 

The Nordic countries have also been affected by the European debt crisis but not as severe they have relatively low unemployment rates and are seen as safe havens in financial markets. Denmark's unemployment rates are at 4.7%, Norway has improved with rates at 3% and Sweden also has seen rates fall to 7.4%.  According to Helge J. Pedersen, Nordea's Global Chief Economist "the Nordic countries emerge as clear winners of the economic beauty contest with the Euro area.  However, even the Nordic countries are facing challenges in terms of sustainable growth years."

Market Outlook

A year has passed and the news continue to be the same despite this investors may start considering an entry point to either short stocks if they believe the market will drop or start buying if they believe the worst is behind.  Slow global growth is expected to affect earnings from multinational companies and this will set the tone for the coming weeks as to where money should be allocated.  Bonds are yielding 1.66%, CD's are below 1% and gold has been hovering in the high $1700's.  It pretty much comes down to staying in cash or getting into stocks. 

The European crisis is still a concern although it has been ignored for a while as the market (^DJI) climbed to $13,661.90 breaking a major point of resistance in September.  Traders who had the chutzpah to short the market seeing it hit a 5 year high were rewarded quickly.  There may be more downside in the coming days and a sell off which investors have been waiting for to get in.  The fiscal cliff is a concern that can take the U.S. economy back into recession early next year if politicians do not make a deal that would evade the high tax hikes. 

Some strategist have been recommending small cap companies on the Russell 2000 as they represent domestic companies and have more upside during the next few years despite global concerns.  If traders believe that the economy will improve and that the market will not drop below 13000 they can start buying stock as soon as the release of corporate earnings when they will get a feel of the sentiment building up for stocks.  Whichever way the market starts moving in the coming weeks getting in by increments if at all is the best way to go.  A lot of people are still in cash for the time being, they are right to be weary specially when they have experienced large losses in a relatively short time period.  Not all the latest news are bad the consumer sentiment report released last Friday shows a surge, consumer sentiment rose to 83.1. The jobless claims report last Thursday saw a 30k drop which is a big improvement but will still need to be confirmed by reports in the coming weeks.   In the end it all comes down to timing risk correctly that's what separates the winners from the losers.