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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
February 8, 2010
The Markets
Volatility
in the financial markets has risen noticeably in the past few weeks as
investors remain on edge about a multitude of issues.
A
mixed employment report for January, continued budget deficit issues in Portugal,
Italy, Ireland, Greece and Spain, monetary tightening in China, and a growing
sense that the worldwide economy might be running on government stimulus fumes
instead of stable gas all contributed to worldwide jitters, according to the
Associated Press. In the U.S., the S&P 500 index dropped for the fourth
week in a row and it is now down 7.3% from its January 15 recovery high,
according to data from Yahoo! Finance. Foreign stocks, commodities, and gold
are also down for the year as shown in the chart below.
The
increase in investor anxiety helped send the value of the U.S. dollar up, up,
and away. Last week, the dollar reached an eight-month high against the euro
and a seven-month high against a trade-weighted basked of six major currencies,
according to MarketWatch. The good news about a stronger dollar is that it
suggests investors still have faith in the U.S. as a "safe haven" in times of
uncertainty.
The
global economy is still recovering from the Great Recession and the path to
future prosperity will likely be bumpy. With proper seat belts, though, we will
do our best to make the trip as smooth as possible.
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Data
as of 2/5/10
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500
(Domestic Stocks)
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-0.7%
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-4.4%
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22.8%
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-9.7%
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-2.4%
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-2.9%
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DJ Global ex US (Foreign
Stocks)
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-3.4
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-7.6
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40.0
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-8.9
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1.9
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0.0
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10-year Treasury Note
(Yield Only)
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3.6
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N/A
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2.9
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4.8
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4.1
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6.6
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Gold (per ounce)
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-1.9
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-4.2
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15.0
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17.7
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20.6
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13.0
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DJ-UBS Commodity Index
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-1.9
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-9.1
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13.3
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-8.5
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-2.3
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2.6
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DJ Equity All REIT TR
Index
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-0.3
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-5.5
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51.4
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-16.4
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0.6
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10.2
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Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested dividends
and the three-, five-, and 10-year returns are annualized; and the 10-year
Treasury Note is simply the yield at the close of the day on each of the
historical time periods.
Sources: Yahoo! Finance,
Barron's, djindexes.com, London Bullion Market Association.
Past performance is no
guarantee of future results. Indices are
unmanaged and cannot be invested into directly.
N/A means not applicable or not available.
CORPORATE AMERICA IS MAKING AN EARNINGS
RECOVERY, but the revenue
recovery is slow to develop. For 2009, The
Wall Street Journal projects that the S&P 500 companies will show a
sales drop of $1.1 trillion, or 13% from the prior year. In the fourth quarter
of 2009, revenue is expected to total just over $2 trillion, which would be the
same number as the first quarter of 2006. In other words, this Great Recession
has set corporate America's revenue back nearly four years.
Interestingly,
while revenue is back down to levels from nearly four years ago, total U.S.
employment in January 2010 was back down to where it was in April 2000 - that's
nearly a 10-year setback in employment - according to data from the Department
of Labor. This indicates that on a comparative basis, corporations have cut
employment more dramatically than the decline in revenue. With employment
levels back to where they were in early 2000, you can see why corporations are
showing solid earnings growth (up 47% so far in Q4 2009 from the year earlier
quarter excluding financial companies, according to The Wall Street Journal) even though revenue growth is weak
(projected to rise just 0.9% in Q4 2009 from the year earlier quarter,
according to The Wall Street Journal).
Corporate America is showing profit gains partly due to the leverage from
keeping employment costs low.
The good news is
that Corporate America cannot keep employee headcount low indefinitely if
revenue starts to rise significantly. Eventually, companies have to hire to
support revenue expansion. When this new revenue expansion/hiring cycle starts
is anybody's guess. But, when it does, that could be a positive sign for the
financial markets.
Weekly Focus - Think About It
"Investors
repeatedly jump ship on a good strategy just because it hasn't worked so well
lately, and, almost invariably, abandon it at precisely the wrong time."
- David Dreman
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Best regards,
Jim Forcella, CFP®, CFS
LPL Branch Manager
LPL Investment Adviser Representative
CA Insurance License #0635256
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Forcella Wealth Management
1600 Victor Ave ● Redding, CA 96003
Phone 530.222.6301 ● Toll Free 800.546.5573 ● Fax 530.226.1677
jim.forcella@lpl.com ● www.forcellawealth.com
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* This newsletter was prepared by PEAK.
* The Standard & Poor's 500 (S&P 500)
is an unmanaged group of securities considered to be representative of the
stock market in general.
* The DJ Global ex US is an unmanaged group
of non-U.S. securities designed to reflect the performance of the global equity
securities that have readily available prices.
* The 10-year Treasury Note represents debt
owed by the United States Treasury to the public. Since the U.S. Government is
seen as a risk-free borrower, investors use the 10-year Treasury Note as a
benchmark for the long-term bond market.
* Gold represents the London afternoon gold
price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a
highly liquid and diversified benchmark for the commodity futures market. The
Index is composed of futures contracts on 19 physical commodities and was
launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures
the total return performance of the equity subcategory of the Real Estate
Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any
reference to the performance of an index between two specific periods.
*
Opinions expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
*
Past performance does not guarantee future results.
*
You cannot invest directly in an index.
*
Consult your financial professional before making any investment decision.
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Securities Offered Through LPL Financial Member FINRA/SIPC
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