Incoming Spanish prime minister set to make cuts
News out of Spain was positive as new Prime Minister, Mariano Rajoy, pledged to shrink the nation's public sector and reduce government spending in order to slash the Eurozone's third-largest budget deficit. Prime Minister Rajoy’s first move will be to institute a constitutional amendment on budget discipline approved by both his party and the outgoing Socialists. This new law will call for the debt-to-GDP ratio to be cut to 60% by 2020 and for the deficit to be limited to 0.4% of GDP. Rajoy also announced that Spain's banking system needs to be repaired as it tightens credit standards amid €176 billion of troubled real estate assets.
U.S. housing picture brightens
The latest data from the U.S. Census Bureau revealed a 9.3% surge in housing starts during November. The annualized 685,000-unit pace is the highest since April of 2010 (687,000 units). At the same time, the figures showed that building permits had unexpectedly jumped 5.7% in November, suggesting that starts would continue their expansion.
Canadian consumer spending rises
Canadian retail sales began the final quarter of 2011 with significant momentum, climbing 1.0% in October. This was the second straight gain of 1.0% and took the three-month advance to 2.7%, the fastest pace since the first quarter of 2010. As well, Statistics Canada reported that gains were seen in seven of 11 sub-sectors, representing 76% of total retail sales. Motor vehicle and parts dealers saw a 2.0% increase to lead overall sales in October. At the same time, sales at furniture and home furnishings stores decreased 0.8% in October, the largest of the four monthly declines.
Investment returns from stocks are closely tied to corporate earnings growth. Historically, over the long term, corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations, though, are more volatile than earnings, since they are influenced by investor sentiment, which swings between optimism and pessimism. Recent uncertainty about the pace of the global economic recovery, centered on government debt in parts of the developed world, has added to market volatility. It is important to keep a sense of perspective, to remember that recessions do occur from time to time, and that they are followed by recoveries. The summer market correction has caused stock valuations to fall to levels that are substantially below their long-term average – and this has provided investors with a rare investment opportunity. We believe investors are best served by staying invested and ensuring they maintain a diversified portfolio that matches their risk tolerance.
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