For a number of reasons the current form of the Affordable Care
Act, aka ObamaCare, could be delayed or modified, in my opinion. Exactly how ObamaCare will be delayed or changed
is unknowable at this time. Significant
uncertainty will persist for the healthcare industry until this gets sorted
out. Healthcare and biomedical stocks
have risen substantially in the last several years in anticipation of more people
being included in the system. This
underlying assumption is in jeopardy.
For this reason I am recommending taking some profits on healthcare and
biomedical stocks by selling 50% of the position and reinvesting the proceeds
into another investment category until the cloud of uncertainty has been
removed.
Daily Archives: November 5, 2013
The “Heat Map”
Most of the time, the U.S. stock market
looks to 3 factors (call them the “pillars” that support the stock market) to
support its upward trend – let’s grade each of the pillars.
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 on
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 continues this upcoming week. Zacks Investment Research says
third-quarter earnings for the 355 S&P 500 firms that reported as of Oct.
31 were up 4.5% from the same 2012 period, with 67% beating expectations.
Revenue rose 2.9%, with 49% topping forecasts.
We will maintain or grade of “A” based upon these results.
NOTE:
the above grades are unchanged from last week.
The Economy
The Institute of Supply Management (“ISM”)
Manufacturing report for the month of October came in better than expected.
While economists were expecting an increase to 55.0, the actual reading came in
at 56.4. This was the highest reading since April 2011; and the fifth straight
better than expected report. The last time we had at least five consecutive
stronger than expected ISM Manufacturing reports was in the first half of 2009.
Does this mean the FED will taper its
easy monetary policy in the near future?
Probably not. The Employment component of the ISM report was
disappointingly weak. The FED is most
concerned about employment right now.
More likely than not, the FED will ignore the strength indicated by this
ISM report and keep its foot on the easy money gas pedal.
The Numbers
Last week, U.S. Stocks increased. Foreign Stocks and Bonds declined. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 11-1-2013 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.4 |
-1.4 |
-1.2 |
2.9 |
6.0 |
4.8 |
|
US Stocks-Standard & Poor’s 500 |
.1 |
25.7 |
26.2 |
16.6 |
15.2 |
7.5 |
|
Foreign Stocks- MS EAFE Developed Countries |
-1.5 |
15.9 |
21.3 |
4.7 |
8.4 |
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 guest, Capital Blue
Sr. VP of Business Development, Aji Abraham, will discuss: “The Capital Blue Store
andhighlights of the Affordable Care Act”
Laurie and
her guest 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.
Economic Quote of the Week
“The
function of economic forecasting is to make astrology look respectable.”
function of economic forecasting is to make astrology look respectable.”
– John Kenneth Galbraith,
Economist and Author
Personal Notes
From time to time
I am asked about my retirement plans. I
am happy to say I have no plans to retire because I enjoy what I do for clients
and working with Valley National’s team members. I happened across a quote attributed to
Warren Buffett which fits him as well as me:
“I can certainly define happiness, because
happy is what I am. I get to do what I
like. I get to do it with people I
like. I tap dance to work.” – Warren
Buffett
The Markets This Week
Stocks ended little changed on Friday, falling from
the record highs hit on Tuesday. Small-caps fell. The backtracking was caused
partly by a Federal Reserve announcement on Wednesday interpreted by investors
as inching up the small risk that the central bank will taper its bond-buying
stimulus next month.
Adding to such fears was economic data released on
Thursday (such as the Chicago Purchasing Managers index) that were stronger
than expected.
“Sometimes
in the market, good news is bad news,” says Andrew Ahrens, CEO of Ahrens
Investment Partners. A stronger economy should be good news for companies, but
the Fed’s easy-money policy has benefitted stocks enormously, and investors
fear the removal of the punch bowl. Ahrens believes that a December tapering
“isn’t in the cards, but if there is one, it would be an insignificant
amount.”
On the week, the Dow industrials rose 0.3%, or 45
points, to 15,615.55, but below the 15,680.35 record. The S&P 500 edged two
points, to 1761.64, down from a high of 1771.95. The NASDAQ fell 21 points or
0.5% to 3922.04.
While October was a good month for equities, what
might be worrisome, near term, is that small-caps, which have led this long
rally, underperformed significantly. The S&P 500’s total return last month
of 4.6% topped the 2.5% monthly return from the Russell 2000, which fell 2%
last week.
That’s not a particularly good sign for the short
term, says Leuthold Group CIO Douglas Ramsey. Market volatility and sentiment
measures, like put/call ratios, suggest a sharp jump in volatility and a
downward lurch in stock prices this month, adds the CIO, who’s shorting
the iShares Russell 2000 exchange-traded
fund (ticker: IWM).
Perhaps the only thing that dents our conviction in
a near-term downdraft is that everyone seems to think that the market is due
for a drop. Momentum is stronger than sentiment—until it’s not (Source: Barrons Online).