The tents and crowds of Musikfest 2009, Bethlehem, PA.
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Greetings!
Musikfest always reminds us to relish our last
weeks of summer. Besides working hard here at the office, Jack has spent the
summer enjoying the Miracle League baseball games of his sons. Mary is spending this week in California as she represents NothelferMorrone in
San Diego at the LPL National Conference as one of LPL's top 1% of advisors. May
you also enjoy the remaining weeks of summer!
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THE MARKETS |
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Jobs are starting to come back.
Corporate earnings are stabilizing. Now, it is up to the consumer to do their
part - and that means start spending.
Last week, the government reported
that the July unemployment rate ticked down to 9.4% from June's 9.5% reading.
Also, the number of jobs lost in July came in at 247,000, which was
significantly better than analysts expected. Corporate earnings are coming in
better than expected, too. Zacks reported that as of August 3, more than 70% of
the S&P 500 companies that had reported second quarter earnings beat
estimates.
Now, here's the conundrum. Consumer
spending accounts for about 70% of economic activity here in the U.S. This means
in order for the economy to experience sustained growth, consumers will need to
open their wallets and spend, spend, spend. Unfortunately, reckless deficit
spending on the part of consumers (and government) helped put us in this
financial mess in the first place. Can "more" of what got us into this mess
help get us out of it?
Perhaps the way to solve this
conundrum is to turn to the field of medicine and the concept of a vaccine. Vaccines
typically contain an innocuous form of the bacteria or virus that the vaccine
is trying to guard against. In medicine, it turns out that a derivative form of
the problem actually prevents the problem.
The same concept can work for our
economy. Consumers do need to spend, but they need to spend responsibly. By spending within their
means and being prudent in their purchases, consumers can move this economy
from recession to sustainable expansion. Effectively walking this fine line
between responsible and reckless spending may be good for stock prices and for
the future of our country.
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Data
as of 8/7/09
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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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2.3%
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11.9%
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-22.0%
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-7.5%
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-1.0%
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-2.5%
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DJ Global ex US
(Foreign Stocks)
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1.2
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25.6
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-20.7
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-5.1
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5.1
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1.6
|
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10-year Treasury Note
(Yield Only)
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3.9
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N/A
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3.9
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4.9
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4.2
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6.1
|
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Gold (per ounce)
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1.8
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9.9
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9.7
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13.7
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19.1
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14.1
|
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DJ-UBS Commodity Index
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3.0
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11.1
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-33.4
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-9.8
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-2.2
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4.1
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DJ Equity All REIT TR
Index
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16.4
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13.3
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-29.0
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-11.9
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2.2
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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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INVESTORS ARE DRIVEN
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Investors are driven by the fear of losing and the fear of losing out.
Last winter, as the financial markets were seemingly in a free fall, panic and
fear reigned. There was a sense that the worldwide financial system could
collapse and that the problem was bigger than the government's ability to solve
it. This fear of losing spurred more selling and it became a vicious cycle - until
it stopped. Today, it's a completely different picture.
Today, the
banking system is back from the brink. Liquidity is improving. The S&P 500
index is up about 50% from its March low. And, the economy is showing definite
signs of coming back to life. Ironically, fear is also returning to the
markets. However, it is not the fear of losing money; rather, it is the fear of
losing out from making a big killing as the markets recover.
Both types of
fear have the ability to dramatically move the markets.
To state the
obvious, humans are emotional. For example, we're emotional about
relationships, about work, about politics, about religion, about food, and, of
course, about money. As humans oscillate between the fear of losing money and
the fear of missing out on making it, we tend to drive the financial markets
much lower and much higher than "reason" might dictate.
The tricky
question facing investors right now is, "Will the fear of missing out on a big
rally drive this market even higher as investors who have been on the sideline
decide they have to get in?" Back in the late 1990s, the technology-led stock
market bubble took stock prices to an unprecedented level that was far higher
than justified by "fundamentals." Could history be repeating itself?
Interestingly,
as of last Friday, the S&P 500 index was 22% lower than it was 10
years ago. For the bulls, this suggests the market still has lots of room to
run higher and is in no danger of being in bubble territory. For the bears,
they point to a near 50% rise and say it's time for a breather. Also, famed
investors such as Paul Tudor Jones think this is nothing more than a sharp bear
market rally.
Ultimately,
significant money can be made or lost during periods when human emotions move
toward the extremes of "fear of losing" and "fear of losing out." We work
diligently on your behalf to try to be on the profitable side of the "fear"
investment. |
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THINK ABOUT IT
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"In business as
in life, sometimes bad things happen to good people, and sometimes good things
happen to bad people. But over time, if you play long enough, everybody gets
what he deserves... good and bad."
--Jeffrey
Immelt, Chairman and CEO of General Electric
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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
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