Daily Archives: February 5, 2014

Heads Up!

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THE FOLLOWING IS REPEATED FROM LAST WEEK FOR
EMPHASIS: 

The Asian Financial crisis of
1997 – 1998 helped to cause some extraordinary volatility in the US markets in
1997 and 1998.  Here is a look at price movements on the S&P:

2/18/97-4/1/97                
– 9.6%
8/6/97-8/29/97                
– 6.3%
10/7/97-10/27/97            
-10.8%
12/5/97-12/24/97            
– 5.48%
1/5/98-1/9/98                   
– 5.05%
7/17/98-10/8/98              
 -19.0%

Surprisingly, the stock market’s return for the two
years 1997 – 1998 were very attractive, even with the above volatility: 

1997 S&P 500 (including dividends)              +33%


1998 S&P 500 (including dividends)              +28%



Bottom Line
Based upon what we know at this time, we recommend
you “Stay the Course”.  We may see additional volatility in 2014. 
Although unnerving and panic creating, it is important to keep our investment
disciplines and review past episodes to ease your concerns.  We note that
economic indicators across the developed world continue to show improvement.  As graded below, the U.S. consumer is
spending a healthy amount, the FED continues to be accommodative, and corporate
earnings remain strong which should support continued increases in the US stock
markets for the long run.  Our investment models are more heavily weighted
toward developed economies which arguably have preferable risk/reward
characteristics vs. that of emerging economies.

 


The “Heat Map”

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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).  This is a downgrade from the prior week
due to weakness noted in retail activity. 
See more information under “The Economy” below.



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 continue to grade this factor an A (very favorable).  We are now in
the midst of earnings reporting season for the quarter ending 12/31/13.


The Economy

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Economic
data indicates a slowdown of activity.  Many
business leaders are indicating the same. 
Part of the slowdown is weather related. 
We will remain vigilant to watch how the economy behaves when better
weather returns.

Meanwhile,
here is an update on the very important housing
sector based upon data released last week: Inventory
is still very low, and with the low level of inventory, there is still upward
pressure on prices.  If inventory doesn’t
increase prior to the spring busy season, prices will probably increase a
little faster than expected (a key reason to watch inventory right now).


The Numbers

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Last week, Bonds Increased, however, U.S. and Foreign Stocks decreased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 1-28-2014

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

    .3

 1.5

  .1

  3.7

 4.9

4.6

US Stocks-Standard & Poor’s 500

   -.4

 -3.5

21.5

13.9

19.2

6.8

Foreign Stocks- MS EAFE Developed Countries

  -2.3
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 -4.1

 8.9

  2.7

10.5

3.5

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”

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“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, join Laurie her guest Kerry
Pechter, author of “Annuities for Dummies,” as they discuss: “Annuities.”

Laurie and her guest will take your calls on this
topic and other inquiries this week. 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. 


The Markets This Week

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It’s a good bet investors are relieved that January
is over, as stocks were as cold as the freezing weather on much of the East
Coast last month. The broad market, as measured by the Standard & Poor’s
500, fell 0.4% last week and 3.6% in January. The Dow Jones Industrial Average
fell more than 1% on the week, and closed the month near lows. The index of
mega cap stocks also posted its worst monthly percentage drop, 5.3%, since May
2012.

Increasing concerns about economic distress in
emerging-market nations, such as Turkey and South Africa, among others, led to
under performance among large-cap stocks, which typically have higher international
sales than smaller companies. Little attention was paid to U.S. economic data
released during the week, which was mixed. Quarterly earnings reports that
didn’t meet investor expectations from the likes of Amazon.com (ticker: AMZN) and Boeing (BA) didn’t help sentiment.


The backdrop to the January weakness is the Federal
Reserve’s tapering program, the monthly reduction in its bond-buying stimulus
by about $10 billion. At that rate, the Fed won’t be done until about year end.
All in all, the stock market didn’t give a nice welcome to the new Fed chief
Janet Yellen, whose reign began Feb. 1.


For the week,
the Dow Jones Industrial Average fell 1.1% or 180 points to 15,698.85. Only
four stocks out of 30 had a positive January. The Nasdaq Composite index lost
24 points, or 0.6%, to 4103.88, on the week, and is down 1.7% in January.


There are numerous cross-currents affecting
equities, but the most prominent is the unsettling effect of China’s economic
slowdown on emerging markets. January wasn’t too bad a month for U.S. stocks
until about the 23rd, notes Alec Young, S&P Capital IQ global equity
strategist, when a preliminary reading from the January HSBC China Purchasing
Managers’ Index showed the first contraction in six months.


With the kind of fourth-quarter run that equities
had last year, up 10%, and the strongly bullish consensus that opened the new
year, investors were primed for a reversal, he adds.


“Sentiment got so elevated that it didn’t take
much to drop stocks,” adds Stephen Massocca, a portfolio manager at
Wedbush Equity Management.


(Source:  Barrons Online).