As we forecasted in the last two issues of The Weekly Commentary, the FED’s Chairman, Ben Bernanke, calmed the bond market using wording in his speeches recently that pressured and influenced the bond market to drop interest rates. We suspect this tactic will continue with the end result that interest rates on mortgages, bonds with a maturity of 5 or more years, and intermediate/long term bond funds will decline for the next 2 to 4 weeks. This tactic, which I call “jawboning,” can work for only a limited time period until economic reality sets in again at which time interest rates could move higher. Our interest rate forecast is for interest rates on the above mentioned securities will generally decline for 2 – 4 weeks or longer, but rise over the next 5 to 10 years.
Daily Archives: July 15, 2013
The “Heat Map”
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 continue to 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.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). Many companies will be reporting their profits to the public shareholders in the next 4 weeks – companies reporting their earnings last week exceeded expectations, on average. We will continue to monitor this very closely for the next 4 weeks.
The Economy
Reports issued last week continued to indicate the economy is growing, but at a slow pace – much slower than normal for this phase of an economic rebound. An underlying warning signal appeared – if interest rates on mortgages continue to rise, the economic recovery, anemic as it is, will be placed in danger.
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS. Returns through 5-17-2013 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years Bonds- BarCap Aggregate Index .8 -2.7 -1.9 3.4 5.1 4.5 US Stocks-Standard & Poor’s 500 3.0 19.2 28.7 18.4 8.6 7.5 Foreign Stocks- MS EAFE Developed Countries 3.8 6.7 23.5 6.5 -1.8 5.1
LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders”.
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”
“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, AEP®. This week, Laurie will discuss: “Family conversations and estate 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 and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and 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.
Motivational Quote of the Week
“The only limit to our realization of tomorrow will be our doubts of today.”
Personal Notes
Valley National and I are pleased to announce we have converted to NaviPlan’s fantastic and powerful financial planning software. The most impressive aspect about NaviPlan’s approach is to give the financial planner the ability to keep things simple or, alternatively, drill down deep into the details – at a single click. NaviPlan provides the best calculation engine in the financial planning industry that easily compares “what if” scenarios, side by side comparison of Current situation versus Recommended, and many more benefits. It has received the financial planning industry’s best software award – and, we agree. Call or email me for details on how this tool can assist in your planning.
The Markets This Week
The stock market is breaking records this year faster than Barry Bonds. Are we implying that Fed Chairman Ben Bernanke is “juicing” the market? Let’s just say the recent leaps seem a bit unnatural.
For the 25th time this year, the Dow notched a new all-time closing record on Friday. The S&P 500 hit its 19th record close of the year, and the tech-heavy Nasdaq index hit its highest closing price since those bubbly dot-com days of September 2000.
Bernanke spoke at a conference this week and assuaged investor concerns that a tapering of bond purchases means that interest rates will rise next year. Even if the economy hits a 6.5% unemployment rate, the federal-funds rate might remain at 0%, he said.
Bernanke, in fact, has “ceded control of monetary policy to the markets,” wrote Michael O’Rourke, chief market strategist at Jones Trading. “The Fed has already admitted the exit strategy will no longer work and now the market doubts its ability to stop easing.”
Rate-sensitive stocks rallied on Bernanke’s assurances, with home builders spiking. “Reits [real-estate investment trusts], mortgage reits, utilities, and precious metals received a new reflationary bid after a nine-month correction,” he noted.
If builders keep rising, “that group will set up a tremendous shorting opportunity,” he says.
For the week the Dow rose 328.46 points, or 2.17%, to 15,464.30. The S&P 500 added 48.30 points to close at 1680.19, and the Nasdaq Composite gained 120.70 points, or 3.47%, to 3600.08.
Economic data and earnings results also helped inspire confidence in the markets last week. t (ticker: AA) unofficially kicked off earnings season on Monday with a solid report, and JPMorgan Chase (JPM) and Wells Fargo (WFC) beat analysts’ earnings estimates on Friday. Of course, analysts have been ratcheting down second-quarter earnings expectations for the past few months, meaning that earnings “beats” are not as impressive.
“While we’re beating expectations, it’s off of reduced expectations,” says Troy Logan, senior economist at financial advisor Warren Financial Service. Logan remains bullish on U.S. equities, and financials in particular ( Source: Barrons Online).