|
Market Commentary
Economic Updates
Recent News |
Weekly Commentary
September 7, 2010
The
Markets
Where
does 2 + 2 = billions of dollars? In the stock market, of course!
Back in
the "good ol' days," investment professionals would spend their waking hours
poring over financial statements, developing financial models, and analyzing
reports to try and find undervalued stocks. The thought was you could find
stocks that were selling below their "intrinsic value," and, if you held them
long enough, you would likely earn a nice return. Warren Buffett exemplifies
this style of investing, and he's done pretty well with that strategy over the
past 40 years.
But
today, with an interconnected world filled with impatient "fast traders" and
economic uncertainty, there seems to be a fixation on the latest data released
by Washington or some other business group that has its pulse on a sector of
the economy. Last week, we had two great examples of how the publication of
certain data helped move the markets.
On
Wednesday, the Institute for Supply Management said it's closely watched index
of factory activity rose to 56.3% in August from 55.5% in July, according to The Wall Street Journal. This number was
better than expected and suggested the manufacturing sector of the economy was
holding up well. A similar report on China's manufacturing sector also
showed an unexpected rise. Stocks reacted by jumping 2.5% that day as measured
by the Dow Jones Industrial Average.
And on
Friday, the government released the August nonfarm payroll report and it was
better than expected, according to CNBC. Stocks jumped on the news and the Dow
rose 1.2% as fears of continuing gloom in the job market eased a bit.
So, the
release of two reports in two days, (the 2 + 2), helped the stock market as
measured by the Dow soar 3.7% and add billions of dollars in market value,
according to data from Wilshire Associates.
In this
type of data-driven market, trigger-happy traders can help cause big swings --
both up and down -- that tempt some investors into thinking that either the end
of the world is near or happy days are here again. Ultimately, two pieces of
data in two days may help add (or subtract) billions in market value, but they
are insufficient to discern a new trend. Intrinsic value still matters over
time, and daily data, while helpful, is only part of the puzzle of investing.
|
Data
as of 9/3/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
| |
Standard &
Poor's 500 (Domestic Stocks)
|
3.8%
|
-1.0%
|
8.7%
|
-9.5%
|
-2.2%
|
-3.1%
| |
DJ Global ex
US (Foreign Stocks)
|
4.7
|
-1.6
|
8.5
|
-9.1
|
1.6
|
1.1
| |
10-year Treasury
Note (Yield Only)
|
2.7
|
N/A
|
3.3
|
4.6
|
4.1
|
5.7
| |
Gold (per
ounce)
|
0.4
|
12.4
|
26.2
|
22.7
|
22.7
|
16.2
| |
DJ-UBS
Commodity Index
|
2.6
|
-3.0
|
9.2
|
-6.9
|
-4.7
|
2.1
| |
DJ Equity All
REIT TR Index
|
5.8
|
20.6
|
48.3
|
-4.5
|
2.0
|
11.1
|
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.
HOW THE RICH SPEND
THEIR MONEY may
have a big impact on the pace of our economic recovery. Consider this, the top
5% of Americans by income account for 37% of all consumer outlays, according to
an August 5 Wall Street Journal article that was based on data from Moody's Analytics. At
the other end of the spectrum, the bottom 80% by income account for 39.5% of
all consumer outlays. So much for the 80/20 rule!
The
share of spending by the top 5% has grown over the years, too. Back in the
third quarter of 1990, the top 5% accounted for 25% of consumer outlays versus
the 37% today, according to the Journal
article.
In a
2005 research report, analysts at Citigroup coined the phrase "Plutonomy" to
describe countries that exhibit significant income and wealth inequality.
Plutonomies also are disproportionately dependent on the spending habits of the
wealthy. According to that 2005 report, Citigroup classified the U.S., U.K.,
Canada, and Australia
as Plutonomies.
So, if
you want to know where the economy is heading-follow the money!
Weekly
Focus - Think About It
"If you
start small, dream big, plant a seed of intention, and care for it, it's not
unrealistic to expect something marvelous to come up."
--Marc
Ian Barasch
|
