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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
March 15, 2010
The
Markets
The
American consumer is not dead.
Last
week, a report from the Commerce Department showed a surprising increase of 0.3%
in February U.S. retail sales compared to the month before. That may not seem
like much of an increase, but it was much better than the drop of 0.2% expected by economists surveyed by Bloomberg.
Importantly, it's also the fourth rise in the past five months and represents
an increase of 3.9% over the year-ago period.
So,
how can consumers ramp up spending when unemployment is so high? Barron's magazine pointed out a few
reasons why this is occurring.
First,
it is not unusual at this stage of the recovery. "The last time the
unemployment rate broke double digits, during the deep recession of 1981-82,
consumer spending also was increasing," according to Barron's.
Second,
the government's February 2010 index of aggregate weekly payrolls was less than
1% below the number in February 2009. So, even though unemployment is high,
total payroll income hasn't dropped dramatically in the last 12 months.
Third,
the stock market has rallied substantially since a year ago. As a result, the
"wealth effect" from a rising stock market helped consumers feel a
bit wealthier and loosened their purse strings.
And,
let's face it, Americans love to shop!
When
you combine rising consumer spending with government stimulus and loose
monetary policy, you have a recipe for rising stock prices. And, as if on cue,
last week, the S&P 500 hit a new 17-month high, according to CNBC.
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Data
as of 3/12/10
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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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1.0%
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3.1%
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52.0%
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-6.5%
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-1.0%
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-1.8%
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DJ
Global ex US (Foreign Stocks)
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1.8
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0.6
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73.5
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-6.1
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2.9
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0.9
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10-year
Treasury Note (Yield Only)
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3.7
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N/A
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2.9
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4.6
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4.5
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6.4
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Gold (per
ounce)
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-2.5
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0.2
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19.6
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19.5
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20.1
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14.3
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DJ-UBS
Commodity Index
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-1.7
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-4.8
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24.8
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-7.5
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-4.0
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2.8
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DJ
Equity All REIT TR Index
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3.6
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7.5
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91.9
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-11.4
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2.9
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12.0
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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.
THE
HARDER THEY FALL, the
higher they rise. Would it surprise you to know that the worst stocks during
the bear market that ran from October 9, 2007 to March 9, 2009 turned out to
be--by far--the best performing
stocks over the next 12 months?
Bespoke
Investment Group did an interesting study where they took the S&P 500
stocks and ranked them from 1 to 500 with 1 being the worst performer and 500
being the best performer during the October 9, 2007 to March 9, 2009 bear
market. Then, they sliced this ranking into deciles, with decile 1 being the 50
worst performers, decile 2 the next 50 worst performers all the way to decile
10, which were the 50 best performers.
They
discovered that decile 1 (the 50 worst performing stocks during the bear market)
turned around and rose, on average, 371% during the next 12 months that ended
March 9, 2010. Decile 2, the next 50 worst performers, rose 184% over the
ensuing 12 months. By contrast, decile 10, the 50 best performing stocks during
the bear market, only rose 30% over the following 12 months. Essentially, the
worst stocks during the bear market performed the best during the bull market
and vice versa.
The
study also showed that the average
change of all stocks in the S&P 500 was 122% over the 12 months following
the March 9, 2009 low.
This
study points out one reason why understanding human emotion is an important
factor in successful investing. Think of it this way: on March 9, 2009, at the
bear market low, would you have been enthusiastic about buying stocks that had
declined 80-90% over the previous 17 months? Probably not because your emotions
would have been so rattled, yet, those were the types of stocks that turned out
to be the best performers over the next 12 months, according to Bespoke
Investment Group.
As
the last few years have shown, successful investing sometimes requires that you
gather your courage and do what seems most frightening because the point of
maximum "frightening" may also be the point of maximum profit
potential.
Weekly
Focus - Think About It
"I
learned that courage was not the absence of fear, but the triumph over it. The
brave man is not he who does not feel afraid, but he who conquers that
fear."
--Nelson
Mandela
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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
| * 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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