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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
July 6, 2010
The Second Quarter
in Review
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Data
as of 6/30/10
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2nd
Quarter
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YTD
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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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-11.9%
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-7.6%
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12.1%
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-11.8%
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-2.9%
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-3.4%
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DJ
Global ex US (Foreign Stocks)
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-12.6
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-11.2
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9.2
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-12.7
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1.3
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0.0
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10-year
Treasury Note (Yield Only)
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3.8
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N/A
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3.5
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5.0
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3.9
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6.0
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Gold
(per ounce)
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11.5
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12.7
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33.1
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24.1
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23.3
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15.8
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DJ-UBS
Commodity Index
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-4.8
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-9.7
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2.6
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-9.5
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-3.8
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1.8
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DJ
Equity All REIT TR Index
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-4.1
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5.4
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53.6
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-8.8
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0.4
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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.
STOCK MARKET RALLY FALTERS ON
"MACRO" ISSUES
The stock
market rally that began in March 2009 came to an abrupt halt in the second
quarter. Despite excellent first quarter corporate earnings in the U.S.,
investors fretted about larger issues that could overwhelm the economy in the
months ahead. These "macro" issues include unsustainable government
debt levels in numerous countries, the unwinding of stimulus spending, possible
deflation, persistently high unemployment, financial regulation, and a
government-orchestrated economic slowdown in China, according to The Wall Street Journal, June 30. These
concerns helped send the S&P 500 index to an 11.9% decline in the quarter.
Second Quarter Country Returns
Based on the Dow Jones Global Indexes
Ranked by U.S. Dollar Performance
Winners
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Sri
Lanka
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25.7%
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Peru
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5.9
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Philippines
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5.8
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Iceland
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4.6
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Indonesia
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3.4
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Other Notables
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Greece
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-39.3
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Spain
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-22.3
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France
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-20.5
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Brazil
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-14.8
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U.K.
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-14.0
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Source: Dow Jones
Indexes
ECONOMY SLOWS DOWN
A
variety of economic reports over the past few weeks suggest the economy is
slowing down. For example, home sales dropped, consumer confidence slumped,
manufacturing growth cooled off, and new claims for unemployment insurance
remained high, according to Bloomberg, July 3. However, let's not get too
carried away. A slowdown does not necessarily mean we are headed for another
recession.
Today's
weak economy puts policymakers in a tough spot. Normally, fiscal and monetary
stimulus is enough to jumpstart growth. Unfortunately, we've shot those two
rockets and we still haven't reached escape velocity. If the economy rolls over
from here, the question becomes, "Where do we find a third rocket?"
According to Tony Crescenzi, strategist and portfolio manager at Pimco,
CNBC.com, June 7, our third rocket might consist of time, devaluations, and
debt restructurings. If fired, this third rocket could be painful for many
Americans.
INTEREST RATES DIVERGE
BASED ON RISK PERCEPTION
As
the stock market declined, yields on U.S. government securities declined, too, as
investors fled to the perceived safety of our government paper. During the
quarter, the yield on the 10-year note declined from 3.8% to 3.0%, according to
data from Yahoo! Finance. This decline in yield occurred even though the
government issued more than $300 billion in new debt during the quarter,
according to The Wall Street Journal,
July 1. It was a different story in the corporate bond arena. Yields on
investment-grade corporate bonds and high-yield corporate (junk) bonds rose as
investors began pricing in added economic risk. In a sign of growing risk
aversion, the spread between yields on corporate bonds and government bonds
rose significantly, as investors required a higher yield to hold the
potentially riskier corporate bonds.
THE DOLLAR REMAINS
POPULAR
Some
naysayers think the dollar's days are numbered, but that countdown had yet to
begin in the second quarter. The dollar index, a measure of the dollar's
strength compared to a trade-weighted basket of six other currencies, rose a
solid 5.9% in the second quarter, according to MarketWatch, June 30. Two major
trends are apparently tugging at the dollar and in any given week, one trend
seems to outweigh the other. The euro zone debt crisis helped spark a flight to
the U.S. dollar and was a major reason why the dollar jumped sharply in the
second quarter. However, toward the end of the quarter, disappointing economic
numbers out of the U.S. and new austerity measures in the euro zone led some
investors to rethink their dollar-haven strategy.
SUMMARY
The
recovery from the recession hit a rough patch in the second quarter as several
economic indicators turned soft and the stock market turned south. It's too
soon to tell if this is the start of a new leg down or simply a pause that
refreshes. Either way, we continue to do our best to help you reach your goals.
Weekly Focus - Think
About It
"Psychology
is probably the most important factor in the market--and one that is least
understood."
--David
Dreman
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Warm 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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