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Charles Schwab – The future remains bright despite


volatility of the current market This month, Finance Monthly benefits from commentary on the US market from Kully Samra, the UK branch director of Charles Schwab, a leading provider of financial services.


Rising tensions in the Middle East, continuing concerns over inflation and the mounting pressures of the European debt crisis have all conspired to increase market volatility at the start of 2011. Additional uncertainty was thrust into the market following the tragic earthquake and tsunami in Japan. Despite this increased consternation, we at Charles Schwab remain bullish on US stocks and believe that the recent volatility has been good for longer-term market health. We have noted for a while that the stock market was overbought on elevated optimistic sentiment, so restoring a measure of skepticism among investors will ultimately be healthy for stocks. We remain optimistic on the stock market being able to resume its upward trend after this corrective phase. The latest economic releases reinforce our view


that US expansion continues at a relatively healthy pace, laying fears of a double-dip recession safely to rest. The US manufacturing sector continues to make solid strides helping to lead the expansion, with the Chicago Purchasing Managers’ Index rising to 71.2 in February, the highest reading since July 1988. However, in order to continue on this path of expansion we need to see economic growth producing more jobs to enable a self-sustaining cycle of demand-growth-demand. The fly in the ointment of the recovery remains the relatively weak jobs picture, however, the latest report was a strong one showing signs of a more positive outlook for employment for the remainder of 2011. Meanwhile, compounding problems facing both


consumers and businesses are rising commodity costs. Many companies are having trouble passing these costs on to consumers in this hyper-competitive environment, but others are succeeding, and consumers are footing the bill. Despite inflation concerns, the Federal Reserve is unlikely to react with tighter policy and looks set to maintain its quantitative easing program of purchasing US Treasury bonds (QE2). There is not much the Fed can do to fight commodity inflation, as if it were to aggressively attack commodity prices, a return to


13


Kully Samra


recession would be a very real possibility. The rise in commodity prices illustrates the balancing act facing central banks around the word – central bank action, or indeed inaction, can have wide-ranging consequences. Despite the recent volatility we remain bullish on


the outlook for US stocks. While we can’t be sure what will happen with the markets in the very near term, history has shown that making fear-based decisions is rarely beneficial to investors. One of the keys to long-term investing success is remaining calm during times of uncertainty. fi


fi MONTHLY MARCH 2011


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