We have been busy at Valley National adding to and enhancing our level of services to you. We will describe those to you in pieces over the next several weeks.
First, Valley National is pleased to welcome our new team members: Jane A. Kapinas as Vice President and Trust Representative plus Benjamin M. Tenaglia III as Vice President and Portfolio Manager. Jane and Ben have more than 60 years of combined experience in addition to a unified commitment to providing exceptional service. Jane and Ben work together to manage the needs of trust clients with their future goals in mind. For more information about Jane and Ben, please click: http://www.valleynationalgroup.com/advisors
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. Concerns about the FED changing its stance spooked the stock market last week (and the bond market the last 4 weeks); but, I believe there is only a slim chance the FED will change its accommodative policy anytime soon. I believe the FED will take steps this week to calm the markets. Here is why:
The economic data have improved a bit since the last FOMC meeting … But the improvement has been far from “substantial.” Growth remains sluggish and jobs gains remain moderate. Inflation, meanwhile, has continued to fall further below the FED’s target. Meanwhile, financial conditions have tightened since the last FOMC meeting, as bond yields have risen, mortgage and credit spreads have widened. The tightening in financial conditions appears in large part driven by worries that Fed officials will soon tighten policy.
The FED statement and projections are scheduled for release at 2 PM ET on Wednesday. Fed Chairman Ben Bernanke will hold a press conference at 2:30 PM. I’ll post a preview on Sunday, but I don’t expect any changes to policy.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable).
Last week, the retail sales report and the US Weekly jobs claims showed improvement. Additionally, small business optimism improved. The inflation rate dropped. All of these reports were good news; but the stock market and bond market have both chosen to ignore these reports and focus on the FED’s anticipated statement and press conference this coming week – they are nervous.
QUESTION: You have been cautioning me about the risks of bond and bond mutual funds: if interest rates rise, the value of my bonds and bond mutual funds will drop. I could lose money on these investments. What else should I consider?
ANSWER: Our interest rates are close to a historic low and bond prices at an historic high. The FED has heavily influenced interest rates to go to this low level. At some point, interest rates will rise which will challenge bond investors. New challenges require new thinking. We have changed our asset allocation models to reduce bond exposure and increase exposure to real assets (including real estate), alternative strategies (including global macro, long/short and risk parity), as well as bond funds that use tactical management to attempt to reduce downside risk.
DETROIT: it appears the biggest bankruptcy in municipal history is just around the corner. The city’s emergency manager says Detroit is insolvent and it plans to suspend debt payments which could trigger a Chapter 9 Bankruptcy filing in a matter of months.
Municipal bond investors have known for some time that Detroit was in trouble. Detroit’s municipal bond prices have fallen dramatically. But, it remains unclear to what extent this most recent development is factored into the nationwide municipal bond pricing.
Last week, Foreign Stocks and Bonds increased. U.S. Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders”.
Returns through 5-17-2013
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.2
-1.0
.9
4.5
5.8
4.6
US Stocks-Standard & Poor’s 500
-1.0
15.2
25.2
16.8
6.0
7.3
Foreign Stocks- MS EAFE Developed Countries
.4
5.3
24.2
6.6
-3.5
4.8
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
Your Financial Choices” The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP. This week, Laurie will discuss: “Planning for the life phases in blended families, prior to marriage, life together with children, after children and survivor planning.”
Laurie will take your calls on this topic and other inquiries this week. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
I took notice the Pittsburgh Pirates have “brought up” their #1 draft pick: Gerrit Cole who struck out the first batter he faced with a 99 mph fast ball and followed up with a 2 RBI base hit with his first at bat against San Fran’s Cy Young award winning pitcher. Gerrit went on to record his first win, and on Sunday he recorded his second. The Pirates have a deep pitching staff. And, they have the will and motivation to win thereby snapping Pittsburgh’s more than 2 decade drought of winning seasons, the longest in the history of professional sports. Even if you are a Phillies or Yankees or Sox fan, a small part of you has to cheer for the Pirates to finally have a winning season.
Retail investors who just recently started feasting on stocks again are getting a serious case of indigestion, and some are seeking the comfort of an old staple: cash. Uncertainty about the Federal Reserve’s purchasing plans has sunk bond markets in recent weeks, and stocks have also proven unsteady; the drop hasn’t been dramatic, but it has been persistent. The major indexes have now fallen three times in the past four weeks.
The Dow fell 177.94 points, or 1.17%, on the week to close at 15,070.18. The index fell 105.9 points on Friday. The S&P 500 dropped 16.65 points to 1626.73. The Nasdaq composite fell 45.66 points, or 1.32%, to 3423.56.
Investors continue to seek clarification from the Fed, which hinted that it might curtail its $85 billion-per-month asset-buying program later this year as the economy picks up. A change in that plan would be relatively small in terms of absolute dollars—the Fed might cut its purchases of securities by $10 billion or $20 billion per month. But even the suggestion of a reduction has rippled across global markets. Bonds in emerging economies have tumbled since early May, and the International Monetary Fund warned the U.S. central bank on Friday that the way it communicates its intentions could disrupt economies in far-off places.
With all that in mind, Ben Bernanke will sit before a lectern next Wednesday and answer questions from the press following a meeting of the FOMC. Traders will likely remain on edge Monday and Tuesday.
“The market has become a drug addict and the Fed is the dealer,” says Ed Yardeni, president of Yardeni Research. “Everybody’s going through the shock of withdrawal.”
INVESTORS AREN’T FLEEING the markets en masse yet—bond and equity funds saw inflows in May, according to ICI. But retail money-market funds have risen by $20 billion in the past two weeks, including $11 billion in the week ended June 12. That’s the largest jump since Jan. 2.
Cash earns you “bupkis,” while U.S. stocks are still attractive, Yardeni notes. “Staying home is good advice for equity investors.”
U.S. conglomerates with foreign exposure might be the best bet, says Bank of America’s head equity strategist Savita Subramanian. Stocks with high foreign exposure are trading almost at parity with domestic-focused stocks in their price to sales ratio, a rare phenomenon. (In 2009, multinationals were more than twice as expensive as U.S.-centric names.) That’s partially because “the housing recovery is the No. 1 theme investors have been buying into” and expectations for U.S. investments have been revised higher as the rest of the world has been revised lower. If history serves, the momentum could shift back toward multinationals ( Source: Barrons Online).
