Two of the “Heat Map” indicators have been downgraded and the third, “The FED and its Policies” is subject to the results of the FED meeting this Wednesday. In addition, China’s economic slow-down coupled with its stock markets’ unusual gyrations are cause for concern.
RECOMMENDED ACTION: make sure any portfolio withdrawals anticipated during the upcoming 18 months (from your portfolio) are in more stable short term bonds or money funds. If you are aware (and we are not) of an upcoming withdrawal for a new car, home renovations, second home purchase, etc., please notify me ASAP to make sure the anticipated withdrawal is not invested in stocks or stock mutual funds.
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: This grade is a B- (slightly favorable). This is a downgrade from B. This month’s retail sales was disappointing. Time will tell whether it is a beginning of a trend or a one-time aberration.
THE FED AND ITS POLICIES: We 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: This factor’s grade is a C (average). This is a downgrade from B-. We had been tolerant of weak earnings, but with the possibility of a Fed hike approaching, we are becoming less forgiving.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. This is an increase from 4 due to uncertainties in China. These risks deserve our ongoing attention.
Last week,Bonds increased while U.S. Stocks and Foreign Stocks declined. U.S. Stocks were little changed. During the last 12 months, STOCKS outperformed BONDS.
Returns through 7-24-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.3
.3
2.3
1.5
3.3
4.6
US Stocks-Standard & Poor’s 500
-2.2
2.1
6.8
18.3
16.0
7.6
Foreign Stocks- MS EAFE Developed Countries
-1.5
6.6
-3.1
13.9
8.1
5.1
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.
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: “Understanding retirement benefit options including Social Security, pension elections and 401ks.”
Laurie will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. 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.
Stocks were spanked last week in a global selloff that spared few markets. U.S. major indexes lost 2% to 3%, as investors expressed their dissatisfaction with second-quarter results from several bellwether companies.
Adding fuel to the pyre, continued mixed U.S. economic data and a bearish manufacturing figure from China led to an unhappy Friday, when the broad market fell 1%. In the background, growing ever nearer, is the month of September, when some expect the Federal Reserve to begin raising interest rates. The Fed’s easy-money policy has been a major factor in the six-year rally.
In particular, poor second-quarter results from United Technologies (ticker: UTX) caused a 10% drop in its shares, a major contributor to the Dow Jones Industrial Average’s 3% retrenchment to 17,568.53. United Technologies was worth 80 of the 518-point drop. Only five Dow stocks out of 30 rose on the week. Market sentiment, meanwhile, took a hit from another Dow member, Apple (AAPL). The world’s largest company by market capitalization produced softer-than-expected second-quarter iPhone sales, although earnings were strong.
Last week the Standard & Poor’s 500 index fell 47, to 2079.65, as each of its 10 sectors declined. The Nasdaq Composite lost 2.3%, or 122, to 5088.63. The MSCI World Index dropped 2% on the week.
With Greece out of the headlines—for now—and worries receding about the June plunge in Chinese equities, investors turned to corporate earnings. In contrast to the previous week, they didn’t like what they saw, says Mark Luschini, chief investment strategist at Janney Capital Management.
Several big names posted poor results, leading to increasing worries about the global economic landscape in general, and China in particular, says Dan Greenhaus, chief global strategist at BTIG. On Friday, preliminary data on U.S. manufacturing in July rebounded slightly, but similar data for China fell to a 15-month low. Worries about an interest-rate hike continue to nag investors, he adds.
The stock markets have been acting like a yo-yo. Nevertheless, the long term trend is up. If you could visualize your portfolio, the best description is think of how a yo-yo looks when someone is playing with it, while going up an escalator.
And currently, we believe the escalator is still trending up, based upon our interpretation of the three factors reported below under the “Heat Map”.
One of our roles as portfolio manager is to keep your eye focused on the long term: the escalator and its direction. (Avoid over-focusing on the yo-yo which could steer you toward emotional investment decisions).
NOTE: The news media prefers you to focus on the yo-yo and tune-in each day for an update. Frequently, the news will be biased in such a way to elicit your desire for an update – sometimes to alarm you unnecessarily. It’s best to put it in perspective as described above.
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: This grade is a B (favorable).
THE FED AND ITS POLICIES: We 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: This factor’s grade is a B– (slightly above average).
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 4. These risks deserve our ongoing attention.
Last week,Foreign Stocks increased while Bonds declined. U.S. Stocks were little changed. During the last 12 months, STOCKS outperformed BONDS.
Returns through 7-10-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
-.1
-.4
1.7
1.4
3.3
4.4
US Stocks-Standard & Poor’s 500
0.0
1.9
7.9
18.2
16.4
7.8
Foreign Stocks- MS EAFE Developed Countries
0.2
6.1
-2.3
12.6
8.6
5.2
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.
