The
political wrangling ended before the start of the all important holiday
shopping season and prior to causing severe harm to the US economy. Gasoline prices declined as well as mortgage
interest rates. The Chinese economy
accelerated for the first time in three quarters. All-in-all a good week.
Monthly Archives: October 2013
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. 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 10-18-2013 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
0.6 |
-1.4 |
-.9 |
2.9 |
5.9 |
4.8 |
|
US Stocks-Standard & Poor’s 500 |
2.4 |
24.4 |
22.4 |
16.2 |
15.7 |
7.5 |
|
Foreign Stocks- MS EAFE Developed Countries |
2.8 |
17.1 |
20.1 |
4.8 |
8.3 |
4.7 |
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 and her guests, Russell Wild, MBA and author of “Bond
Investing for Dummies” and Kevin Brosius CFP and Financial Advisor, will
discuss: “Investing
in Bonds.”
Laurie and her guests 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.
Quote of the Week
“My
future starts when I wake up every morning…
Every day I find something
creative to do with my life.”
– Miles
Davis
future starts when I wake up every morning…
Every day I find something
creative to do with my life.”
– Miles
Davis
Personal Notes
The sport of baseball invented the word “IF.” The Pittsburgh Pirates’ season ended with a
loss to the St. Louis Cardinals in their 5 game series, 3 games to 2. The Pirates actually lead the series 2 games
to 1; and, IF the Card’s Matt
Holliday had not hit a 2 run homer, the Pirates would have won the game 1 – 0
and the series. IF the Pirates
would have beaten the Cards, maybe it would be the Pirates playing in The World
Series instead of the Cards.
The Markets This Week
Maybe the federal government should
shut down more often.
Stocks soared 2%-3% after the warring
parties in Washington, D.C., hammered out an 11th-hour deal Wednesday,
temporarily funding the budget and raising the Treasury’s debt ceiling, which
allowed the government to reopen its doors. Never mind that markets will likely
face a similar threat again around early February, since the deal is simply a
provisional patch-up.
For
a little while, anyway, investors won’t have to worry much about D.C., and
that’s something to be thankful for. Markets will get back to parsing
third-quarter earnings reports, which will move to the forefront for the next
few weeks, until the retail selling season begins on Thanksgiving.
Positive quarterly profit-report
surprises released late in the week from well-known names like Google (ticker: GOOG), Morgan Stanley (MS), and General Electric (GE) helped push
the market forward. They were more than enough to make up for
weaker-than-expected results from Goldman
Sachs Group (GS), and IBM (IBM).
The latter two, down 1% and 7%, respectively, restrained the Dow Jones
Industrial Average, as their relatively high-priced stocks make them among the
most influential in the index.
Nevertheless, the Dow rose 163 points
on the week, or 1%, to 15,399.65. The S&P 500 index, meanwhile, jumped 41
to 1744.50, setting a new all-time closing high in the process, which the Dow
was unable to do. The Nasdaq Composite index soared over 3%, or 122 points, to
3914.28, and is up a whopping 30% on the year. That’s its highest close since
Sept. 8, 2000.
In the context of the Federal
Reserve’s continuing easy-money policy and low interest rates, restrained
inflation, and decent earnings growth, the path of least resistance is up, says
Michael Purves, chief global strategist at Weeden. “The market looks a lot
like 2012 now, with strong Fed support and slow grinding growth,” he adds.
Indeed, the Fed is “highly
unlikely” to initiate any tapering—that is, reining in its monthly
bond-buying fiscal stimulus—at its end-of-October meeting, says Peter
Jankovskis, co-CIO at Oakbrook Investments.
While the market rose Thursday after
the debt-ceiling deal, Friday’s rise came on good old-fashioned earnings
surprises, he says. Getting the focus away from Washington and back on
corporate earnings is a positive, he adds.
Even so, the bull is beginning to show
its age, he adds. While earnings growth is decent, “companies are
struggling with revenue growth,” which ultimately is expressed in future
profits, Jankovskis says.
If the market does surge higher,
Purves says, investors will have to grapple with a bull whose characteristics
are becoming riskier. Continued inflows of money into equities will push the
market higher, but this is a bull where the price-to-earnings (P/E) ratio is
higher and the earnings growth rate lower than many of its predecessors (Source: Barrons Online).
Heads Up!
Investors are nervous. This is a natural reaction to the negativity
broadcast by the news media. It is
important to isolate the two news topics and evaluate each one: (1) the DEBT CEILING, and (2) THE U.S.
GOVERNMENT “SHUTDOWN.”
Moody’s Investors Service sees very little chance of a U.S. debt
default later this month, the rating agency’s president and chief operating
officer said on Tuesday. “We have a “AAA” rating and
“stable” outlook (for the United States), which reflects our view
that a default is an extremely unlikely event”, Michel Madelain, President, told a conference in Tel Aviv. “The shutdown
does not really affect the government’s creditworthiness.” He
said the agency believes the U.S. government will take every possible step to
continue to pay interest and principal on its debt even if the debt limit is
not raised. (Source: Reuters)
RECOMMENDATION: Avoid
reacting to an event that is labeled as extremely unlikely. Maintain your long term asset
allocation.
As to the SHUTDOWN, the
duration of the shutdown does matter, if history is any guide, according to
Richard Salsman, chief market strategist at InterMarket Forecasting. Shorter
shutdowns are innocuous, but longer ones are bearish, he says. There have been 17 previous shutdowns since 1976,
ranging from one day to 21, with an average of six. The S&P 500 has fallen
by a mean 0.8% in past shutdowns, but for those lasting 10 days or more, a
decline happened 80% of the time and averaged 2.6%, he says. One month after
the longer shutdowns ended, stocks were still down slightly, compared with a
1.7% average rise after the shorter shutdowns ended. (Source: Barrons Online).
RECOMMENDATION:
Avoid the temptation to time the market.
Maintain your long term asset allocation. Be prepared to add cash to your investment portfolio
if a drop occurs from a prolonged shutdown.
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. And, the FED announced (9/18/2013)
it intends to continue the highly accommodative policy to stimulate the
economy.
BUSINESS
PROFITABILITY: I graded this factor an A (very favorable). NOTE: 3rd
Quarter profit reporting season starts this upcoming week. We will watch the results carefully.
NOTE:
the above grades are unchanged from last week.
The Numbers
Last
week, Bonds increased, U.S. Stocks decreased, and Foreign Stocks were
unchanged. 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 10-4-2013 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.1 |
-2.0 |
-1.7 |
2.8 |
5.3 |
4.7 |
|
US Stocks-Standard & Poor’s 500 |
0.0 |
20.5 |
18.3 |
16.6 |
11.4 |
7.3 |
|
Foreign Stocks- MS EAFE Developed Countries |
-.7 |
12.5 |
16.8 |
3.8 |
4.8 |
4.5 |
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: “Financial Planning
Week and the Financial Planning Association’s network of resources”
Financial
Planning Week is a celebration to help individuals discover the value of
financial planning and make smart financial decisions to achieve life goals and
dreams. 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.