The Talon roller coaster at Dorney Park, Allentown, PA.
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Greetings!
We hope you are enjoying and making the most of the last days of summer. Have you been out to Dorney Park? Go for a ride on that great roller coaster, the Talon. If you like baseball, come check out the Miracle League - the games are great and located right off of Route 309. Maybe you're into fresh fruits and vegetables - the corn this year is delicious, and the Lehigh Valley has a number of farmer's markets and roadside stands. Whatever you do to celebrate the season, have fun!
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THE MARKETS |
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Like a winded
mountain climber approaching 25,000 feet, the domestic stock market took a
breather last week after several weeks of strong gains.
If this breather
turns into the "pause that refreshes," then the markets may soon resume their
upward march and continue the healing from the bear market. Unfortunately, it
does not always turn out that neat and tidy.
Sometimes
mountain climbers take a break and realize they can't go any further. Likewise,
investors digested some of the news last week and realized that perhaps the
market got a little ahead of itself. In particular, investors seemed a bit
spooked by news that retail sales fell 0.1% in July and that the
Reuters/University of Michigan
index of consumer sentiment fell in early August to its lowest level since
March. Although not a perfect correlation, gloomy consumers may turn out to be
stingy spenders and that could be bad news for economic growth.
Similar to our
hypothetical mountain climber mentioned above, the powerful rally over the past
few months may be treading in rarefied air. Last week, it stopped to catch its
breath. Over the next few weeks, we'll see if it also catches a cold.
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Data
as of 8/14/09
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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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-0.6%
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11.2%
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-22.7%
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-7.5%
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-1.4%
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-2.8%
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DJ Global ex US
(Foreign Stocks)
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0.8
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26.7
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-17.8
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-5.1
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5.3
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1.5
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10-year Treasury Note
(Yield Only)
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3.6
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N/A
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3.9
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5.0
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4.3
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6.0
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Gold (per ounce)
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-0.3
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9.6
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16.6
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15.1
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18.9
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13.9
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DJ-UBS Commodity Index
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-2.1
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8.8
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-33.1
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-9.5
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-2.7
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3.9
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DJ Equity All REIT TR
Index
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-5.0
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7.7
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-35.2
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-12.9
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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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HOW MUCH OF THE STOCK MARKET RALLY
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How much of the stock market rally since the March lows is real versus fake?
On the surface, 100% of the rally is real since we can clearly document through
third-party sources that the market has risen significantly. But, is the rally
real from the sense that it is being driven by legitimate, sustainable end-user
demand or is the rally fake because it is being driven by temporary and unsustainable
government spending?
Worldwide,
governments have spent, lent, or committed trillions of dollars to support
global commerce and to help end the recession. In the U.S. alone, the
number is greater than $12 trillion, according to an analysis by Bloomberg. So
far, that money has helped stabilize the world economy and helped pump up stock
prices as corporate earnings did not fall as much as initially feared.
Consider this,
though, what happens to the economy when the
government's "monetary lighter fluid" stops flowing?
Think of it this
way. Let's say you want to start a fire in your backyard fire pit. You gather
some twigs, scrunch an old newspaper and then throw a few logs on top. To
ensure a strong start to your fire, you douse it with lighter fluid. You light
a match and then - poof - you have a roaring fire. If you've effectively laid
out your twigs, paper, and wood, and your wood is dry, chances are your fire
will keep burning long after the lighter fluid is consumed. If not, the fire
will die shortly after the stimulus of the lighter fluid is gone.
As it relates to
the economy, government spending is akin to the lighter fluid. It's igniting
the economy and keeping it stimulated. However, that stimulus will eventually
end and taxes will likely rise. If the economy starts tanking again as the
stimulus wears off, then we'll know that all we've done is mask a major
fundamental economic problem with a temporary pain reliever - albeit a very expensive
one!
Nobody knows
what will happen to the economy when the government largess ends. For our part,
we continue to monitor the heartbeat of the economy to try to discern whether
it can keep beating under its own power. If it can't, we will do our best to
adjust your portfolio and keep it beating to the tune of your long-term goals
and objectives.
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THINK ABOUT IT
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"Successful
investing is anticipating the anticipations of others."
--John Maynard
Keynes
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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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