Musikfest in Bethlehem, PA.
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Greetings!
Welcome to our updated Weekly Market Commentary.
For all of the amateur photographers out there, the top of each issue is a place for highlighting shots of life in the Lehigh Valley. We'd love you to share any great photographs you have, new or old.
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THE MARKETS |
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Whether you are bullish or bearish,
there's plenty of ammo in each camp to support your view.
Here are three keys supporting the
bullish case:
1. The
unfolding earnings season is generally positive. As of last week, a whopping
77% of the 184 S&P 500 companies that have reported earnings so far this
quarter have exceeded expectations, according to Thomson Reuters data.
2. One
of Warren Buffett's favorite economic indicators is now showing signs of life. Buffett
tracks the average weekly U.S.
rail carloads and that rose in June compared to May for the first monthly
increase this year, according to the Association of America Railroads.
3. The
domestic economy is poised for growth this quarter. Believe it or not, GDP may
actually grow this quarter (albeit at a low rate) with an assist from a very
accommodative Federal Reserve, according to Barron's.
For the bears, there's plenty of
food to chew on, too:
1. The
economy, while showing signs of improvement, is still a mess with unemployment
at 9.5% and likely to rise further.
2. The
housing industry is in a depression-like state.
3. Government
spending is way up while revenue is way down, which is resulting in massive
budget deficits at both the state and federal levels.
4. Consumers
are in hunker-down mode, which may limit spending and keep economic growth at a
low level for a long time.
Despite the gloom, the S&P 500
index has risen about 45% in the last 4½ months. It is now up more than 8% for
the year and at its highest level since last November, according to CNBC.
As of last week, the bulls were stampeding
over the bears. An old Wall Street saw says, "Don't fight the tape." Well, the
old ticker tape is long gone, but its replacement - electronic quotes - has been
flashing plenty of green lately. Of course, that could change in an instant. A batch
of poor earnings reports or some surprisingly negative economic indicator might
trip the market. It could also be something a little more unassuming such as
investors deciding en masse that it's time to book some profits and head to the
beach for one last refreshing summer dip.
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Data
as of 7/24/09
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1-Wk
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YTD
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1-YR
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3-YR
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5-YR
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10-YR
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Standard & Poor's
500 (Domestic Stocks)
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4.1%
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8.4%
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-22.1%
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-8.1%
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-2.0%
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-3.1%
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DJ Global ex US
(Foreign Stocks)
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4.9
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21.1
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-25.7
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-5.2
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4.2
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1.2
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10-year Treasury Note
(Yield Only)
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3.7
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N/A
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4.0
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5.0
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4.5
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5.9
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Gold (per ounce)
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1.5
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9.4
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2.5
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16.3
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19.5
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14.1
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DJ-UBS Commodity Index
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2.5
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5.2
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-39.7
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-10.6
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-3.1
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3.9
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DJ Equity All REIT TR
Index
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8.3
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-6.0
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-39.2
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-16.5
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-1.0
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N/A
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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 available.
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WHEN DO YOU MAKE THE MOST MONEY
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When do you make the most money in the financial markets? According to a Barron's magazine quote from Arjun
Divecha, a portfolio manager at GMO (a Berkeley, California-based
emerging-markets equities group), "You make more money when things go from
truly awful to merely bad than when they go from good to great." That insight
may help explain why the U.S.
stock market has rallied so sharply over the past few months.
Do you remember
how bad the news was between October 2008 and early March of this year? Just
when things seemed nearly hopeless in early March, the market all of a sudden
turned around and, as described above, shot up nearly 45%. Once the turn
started, we heard the phrase "green shoots" and little by little, "less bad"
economic and corporate news began to trickle out.
Like Divecha's
quote, once we made the shift from "the world may be coming to an end" to
"we're going to survive this after all," the stock market rallied. Ideally,
we'd all love to be omniscient and magically pick that point when the market
makes the shift, but we can't. However, that misses the real point we want to
make.
The point is not
to confuse what's going on in the economy with what's going on in the stock
market. As we are witnessing right now, the economy and the stock market can decouple.
This decoupling, though, is likely only a temporary phenomenon. If the economy
does not follow through and improve like the stock market is foreshadowing,
then the market could be in for a nasty fall down the road.
To succeed as an
investor, it's important to understand that the economy and the financial
markets can decouple in the short-term. However, in the long run, the two
should more closely resemble each other's trajectory since corporate profits
(and hence, stock prices) are so closely intertwined with the economy. |
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THINK ABOUT IT
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"Most
people get interested in stocks when everyone else is. The time to get interested
is when no one else is. You can't buy what is popular and do well."
-- Warren
Buffett
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Mary L. Nothelfer, CFP® Emilio
J. Morrone, CPA, CFP®
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Securities
offered through LPL Financial, Member FINRA/SIPC.
*
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.
* This
newsletter was prepared by PEAK.
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