Weekly Commentary May 24th, 2010
The
Markets
The
U.S. stock market just entered its first correction of 10% since the March 2009
bear market low, according to Barron's magazine.
In the paraphrased words of economist Michael Darda as reported by Barron's, are we experiencing an
aftershock of the 2008 market crisis or are we having a relapse?
Catalysts
for this recent correction are varied. China is clamping down on its easy money
policy. Several European countries are in the midst of a liquidity/solvency problem.
In the U.S., jobless claims unexpectedly rose last week and the Conference
Board reported a surprising drop in its index of leading economic indicators.
Both reports raised concerns that the economic rebound in the U.S. may be
losing some strength, according to Bloomberg.
The
case for optimism is also in plain sight. U.S.
News and World Report says two new surveys out last week suggest, "We
might be on the verge of experiencing the Great Shopping Comeback of 2010."
Higher consumer spending could propel the economy and create jobs. In corporate
America, first quarter earnings for the S&P 500 companies grew 55% from a
year earlier and 77% of them beat their Wall Street estimate, according to
Bloomberg. And, according to Federal Reserve Bank of New York President William
Dudley as reported by Bloomberg, "The U.S. economy is recovering and we
are now seeing the first signs of significant employment growth."
Economist
Darda answered his own question and said we're simply having an aftershock, not
a relapse. Even if he turns out to be correct, aftershocks could still generate
some "scary headlines" in the near future. As always, we do our best
to stay on top of these types of evolving situations.
|
Data
as of 5/21/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
| |
Standard
& Poor's 500 (Domestic Stocks)
|
-4.2%
|
-2.5%
|
22.6%
|
-10.7%
|
-1.8%
|
-2.5%
| |
DJ
Global ex US (Foreign Stocks)
|
-5.6
|
-11.6
|
11.4
|
-12.4
|
1.5
|
0.7
| |
10-year
Treasury Note (Yield Only)
|
3.2
|
N/A
|
3.4
|
4.8
|
4.1
|
6.4
| |
Gold
(per ounce)
|
-4.6
|
6.9
|
25.8
|
21.5
|
23.1
|
15.7
| |
DJ-UBS
Commodity Index
|
-3.5
|
-11.4
|
3.2
|
-11.0
|
-3.5
|
1.8
| |
DJ
Equity All REIT TR Index
|
-5.0
|
8.6
|
60.0
|
-9.2
|
1.6
|
10.7
|
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.
"History provides a
crucial insight regarding market crises: They are inevitable, painful, and
ultimately surmountable." --Shelby
M.C. Davis, legendary investor
It's
been said that we can count on death and taxes. We should also add "market
crises" to the list. It seems like the market is always either in a
crisis, recovering from a crisis, or anticipating the next crisis.
According to a January 2010 Morningstar article, we've experienced numerous
"crises" over the past four decades including the following:
In the 1970s, we had
stagflation, oil shocks, high inflation, and a stock market that dropped
44% in 2 years.
In the 1980s, we had
the collapse of Drexel Burnham Lambert and the stock market crash of
October 1987, which sent the Dow Jones Industrial Average down more than
20% in one day.
In the 1990s, we had
the savings and loan crisis, the bailout of hedge fund Long Term Capital
Management, and the Asian financial crisis.
In the 2000s, we had
two bear markets, the subprime mortgage meltdown, and the financial crisis
of 2008-2009.
But,
guess what? Despite these market crises, the Dow Jones Industrial Average rose
from 800 at the beginning of 1970 to 10,193 at the end of last week, according
to data from Yahoo! Finance. That's nearly a 13-fold increase.
It's
easy for investors to let the events of the day or the "crisis du
jour" cloud their thinking. However, successful investors take a wider
view and realize that crises happen, crises get resolved, and while they can
sometime be scary, they should not lead you to panic mode.
Weekly
Focus - Think About It
"Close
scrutiny will show that most 'crisis situations' are opportunities to either
advance or stay where you are."
--Maxwell
Maltz
|
