Market Update — July 5, 2012

A few important thoughts and numbers that I read:

Slower growth.  The IMF took down their forecast for US GDP growth from 2.1% to 2% for this year and from 2.4% to 2.25% for 2013.

Weak jobs report expected.  Economists expect the government’s June jobs report Friday to show that just 95,000 new jobs were added.  While this is higher than the 69K jobs added in May, it’s still a very weak number.

Slower growth of healthcare spending.  Adjusted for inflation, U.S. per-person spending on health care grew at an annual average rate of 2.1% between 2005 and 2010 compared with 4.3% in the five previous years and 3.2% in the five years before that.

High deductibles.  The share of insured workers with high deductibles ($1,000 or more) rose to 31% in 2011 from 18% in 2008.

Car sales rebounding.  New car sales in the U.S. are on track to be above 14 million.

VW rebounding in US.Volkswagen is on track to have its best year in the U.S. since 1973.

Death of equities.  Sell side strategists are the most bearish about stocks since 1997.  The average equity allocation is 49.3%, the first time this has been below 50% in 15 years.

Winning sectors.  Four S&P sectors are up more than 12% this year: telecom, tech, consumer discretionary and financials.

Office real estate.  The recovery of the U.S. office market slowed in the past three months.  The vacancy rate is 17.2%.  This is only slightly below the 17.6% at the end of 2010 (when the recovery in this market began).

No equity.  Nationwide, almost three of 10 homeowners with mortgages have no equity in their homes or less than 5 percent equity, says market researcher CoreLogic.  Approximately 45% have less than 20% equity in their home.

Home supply.  The nation had a 6.6-month supply of homes for sale in May, the National Association of Realtors reported.  Of the 18 major markets tracked by real estate brokerage Redfin, 10 had less than a three-month supply of homes for sale in May.

Equity determines home supply.  In cities where more than half of the borrowers were underwater, the supply of homes averaged 4.7 months.  In markets with less than 10% of borrowers underwater, supplies averaged 8.3 months.  It’s hard to sell your house when you’re going to have to bring money to the closing.

Debt-to-GDP ratios.  In many high-debt countries, interest rates are higher than growth rates.  That means that even if countries were not running deficits, debt-to-GDP ratios would increase.

Spain as an example.  Spain is running an 8.5% deficit.  Their ten-year debt is yielding 6.32% and their economy is going to shrink 1.7% this year.  You’re talking about adding ~16% to the debt-to-GDP ratio.

Have a great week.

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