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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
August 16, 2010
The Markets
One
week, the glass is half full, the next week, it is half empty.
Investor's
lack of conviction was on full display last week as a scandal at Hewlett
Packard, a change of heart from the Fed, a revenue miss from tech bellwether
Cisco Systems, and an unexpected rise in weekly jobless claims led to a decline
in global stock markets, according to Bloomberg.
In
particular, a press release dated August 10, the Federal Open Market Committee
met in June and slightly changed its economic outlook by saying, "The pace of
economic recovery is likely to be more modest in the near term than had been
anticipated." To help the economy maintain momentum, the Fed announced that it
will goose the economy a bit by reinvesting the principal payments it receives
on its agency securities in longer-term Treasury securities and that it will
roll over its maturing holdings of Treasury securities in new Treasury
securities. Effectively, this means the Fed will not shrink its balance sheet
for the time being.
Whether
this move is good or bad for the economy is subject to debate. One camp says it
will help keep interest rates low, which could be good for the economy. Another
camp says it will help keep interest rates low, which could be bad for the economy at this stage of the economic
recovery. That was not a misprint -- smart people are taking opposite views on
whether low rates are good or bad for the economy. Kansas City Fed President
Thomas Hoenig leads the dissenters. In a speech in Lincoln, NE last week,
Hoenig said, "We need to get off of the emergency rate of zero, move rates up
slowly and deliberately" and "We will repeat the cycle of severe recession and
unemployment in a few short years by keeping rates too low for too long."
This
tug-o-war between smart people makes for interesting reading (at least for us,
anyway!)... but generates no clear trend in the market.
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Data as of
8/13/10
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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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-3.8%
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-3.2%
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7.5%
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-9.4%
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-2.6%
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-3.2%
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DJ Global ex US
(Foreign Stocks)
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-4.2
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-5.0
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4.4
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-9.6
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1.2
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1.0
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10-year Treasury
Note (Yield Only)
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2.7
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N/A
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3.6
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4.8
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4.3
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5.8
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Gold (per ounce)
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0.5
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10.0
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27.3
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22.0
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22.3
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16.0
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DJ-UBS Commodity
Index
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-1.9
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-4.6
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1.4
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-7.6
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-4.2
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2.5
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DJ Equity All
REIT TR Index
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-3.8
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12.5
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33.2
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-4.9
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1.3
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10.0
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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.
IF YOU HAD TO DESCRIBE THE STATE OF THE
ECONOMY as
an animal, which animal would you pick? This may sound like a silly question,
but it is an actual question from a national survey released last month and
sponsored by the Certified Financial Planner Board of Standards.
Some
of the less common survey responses
included cow, kangaroo, lamb, dinosaur, possum, rat, giraffe, hyena, and, not
surprisingly, bull. Looking at this list makes us wonder... what attribute does a
giraffe or a possum have that can be compared to the economy? Let us know what
you think.
The
most common responses were bear, snake, turtle, sloth, lion, pig, dog, and
skunk.
Okay,
have you picked your animal?
For
discussion purposes, let's say that you picked a bear as your animal. Of
course, a "bear" is also commonly used to describe a weak stock market. Now,
here's the point. Often, investors get an idea in their mind -- e.g. this is a
"bear" market -- and have a hard time changing their perception even in the
face of new evidence that would suggest their perception is inaccurate. Psychologists
call this "anchoring" and it has led many investors astray, according to
Investopedia.
The
key to overcoming anchoring is to keep an open mind, be willing to change, and
utilize rigorous thinking.
So,
no matter what animal you picked, whether it be bull, bear, turtle, sloth, or
skunk, be alert to new information that may suggest that it's time to pick a
new animal. As your advisor, we are mindful of the "anchoring" bias and we do
our best to base our decisions on rigorous thinking and not on an outdated
opinion.
Weekly Focus - Think
About It
"To
get all there is out of living, we must employ our time wisely, never being in
too much of a hurry to stop and sip life, but never losing our sense of the
enormous value of a minute."
--Robert
Updegraff
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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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