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Market Commentary
Economic Updates
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Weekly Commentary
June 1, 2010
The
Markets
"Sell
in May and go away" is a popular Wall Street adage. After the May we just
experienced, investors are saying, "True that!"
According
to a May 1, 2008 CNNMoney.com article, "The old 'sell in May' strategy
says that if you invest in the S&P 500 or the Dow industrials during the
'best six months' (November through April) and then switch into bonds during
the 'worst six months' (May through October), you'll end up with better returns
than if you did the reverse." In fact, a study by Plexus Asset Management
as reported by InvestmentPostcards.com, showed that between January 1950 and
March 2009, the S&P 500 index returned 7.9% per annum during the "best
six months" and only 2.5% per annum during the "worst six months."
The
S&P 500 performed better during the "best six months" due to
seasonal factors such as end-of-the-year bonuses, the "Santa Claus"
rally, and the timing of tax refunds and quarterly earnings results, according
to the CNNMoney.com article. Of course, past performance is no guarantee of
future results and this "Sell in May and go away" strategy does not
work every year.
But,
back to the May just passed. It wasn't pretty. The S&P 500 index dropped
8.2% for the month making it the worst May performance since May 1962,
according to CNBC. Rising tensions in the Korean peninsula, European debt
worries, China's property bubble bursting, and the winding down of America's
"stimulated" economy conspired to send investors to the sidelines,
according to The Economist.
Not
too surprisingly, as equity prices declined in May, government bond prices
rose, according to Associated Press. This "flight to safety"
suggested that diversification between equity and government bonds worked in
May.
While
you may "go away" this summer for some rest and relaxation, be
assured that we will remain hard at work on your behalf.
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Data as
of 5/28/10
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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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0.2%
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-2.3%
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18.5%
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-10.5%
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-1.8%
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-2.6%
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DJ
Global ex US (Foreign Stocks)
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1.7
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-10.1
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11.3
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-11.9
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1.7
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0.7
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10-year
Treasury Note (Yield Only)
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3.3
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N/A
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3.7
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4.9
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4.0
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6.4
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Gold
(per ounce)
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2.4
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9.4
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26.1
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22.3
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23.9
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16.0
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DJ-UBS
Commodity Index
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1.6
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-9.9
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1.8
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-9.7
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-3.6
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1.9
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DJ
Equity All REIT TR Index
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2.2
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11.0
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59.8
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-9.4
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2.4
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11.0
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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.
OVER THE PAST FEW MONTHS, we've endured an
uncontrollable oil spill in the Gulf, a volcano in Iceland that disrupted air
travel in Europe, and an earthquake in Haiti that caused immeasurable
suffering. These human disasters have parallels in the financial world that are
worth noting.
The
ongoing gusher in the Gulf is a manmade disaster that, in the financial world,
looks like our country's ongoing manmade gusher of deficit spending. With the
fragile Gulf ecosystem drowning in oil, our country is drowning in bills that
will eventually come due. Efforts to stop the oil spill have so far failed as
have our efforts at reducing our deficits. BP says drilling a relief well is
the "end game" to stop the leak. What is our country's endgame to
stop the ballooning fiscal mess?
The
volcano in Iceland disrupted air travel for millions of travelers causing
birthdays and weddings to be missed, business meetings to be cancelled, and a
few extra days of unexpected expenses. But, eventually, the ash cleared and
travelers went on their way. Likewise, the financial markets experience
disruptions from time to time that are disappointing to investors. We call
these "corrections" and they are usually temporary and not
"retirement threatening." They're no fun, but we get through them.
The
earthquake in Haiti came without warning and was devastating. More than 200,000
people likely died and many more will feel its effects for years to come. Poor
infrastructure and lack of planning exacerbated the devastation of the quake.
Likewise, the economic crisis of 2008-2009 is the financial market equivalent
of the Haiti earthquake. Our country's inability to live within its means (poor
infrastructure) and prepare for contingencies (poor planning) led us to a
market debacle. Like Haiti surviving its calamitous quake, we can survive a
market meltdown, and, ideally, learn from it so we are better prepared to
withstand the next financial earthquake.
This
comparison of nature's disasters to a financial counterpart is not meant to
trivialize the pain from the Gulf, the volcano, and the earthquake. Rather, it
suggests that we can become better investors by learning the lessons that
nature teaches us. The question is, will we take nature's lessons to heart?
Weekly
Focus - Think About It
As
we took time this past Monday to remember those who gave their lives for our
freedom, these words from singer Lee Greenwood express a sentiment that we all
feel:
And
I'm proud to be an American,
Where
at least I know I'm free.
And
I won't forget the men who died,
Who
gave that right to me.
And
I gladly stand up,
Next
to you and defend her still today.
'Cause
there ain't no doubt I love this land,
God
bless the USA.
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Best regards,
Jim Forcella, CFP®, CFS
LPL Branch Manager
LPL Investment Adviser Representative
CA Insurance License #0635256
P.S. - Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
Closing Reminders - Should your personal or financial situation change (i.e. Marital or employment status, beneficiary changes or income needs) please contact us at 530.222.6301 or 800.546.5573 for either a phone review, or an appointment. We want to ensure that your current financial objectives meet your personal circumstances.
Forcella Wealth Management Information - Are you receiving too much mail regarding your investments? You now have the option to receive your LPL Financial communications electronically! LPL Financial is pleased to offer the convenience of viewing shareholder communications, including the fund prospectus, annual reports, and proxy statements online. Visit the link below to be directed to a secure website where you will enter your LPL Financial account number and Email address. You will no longer receive shareholder communications information through the mail but can request a hard copy at any time. Please feel free to contact us if you have any questions regarding this form.
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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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