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.
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, Michael Martin CFP will discuss: “Recent college grads – how to manage your finances”
Laurie and Michael 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.
The stage was set for an ugly week. On Wednesday, with the stock market looking as fragile as it has in months, the New York Stock Exchange abruptly shut down, just after United Airlines grounded its planes due to a network failure. China was trying unsuccessfully to bootstrap its market, and Greece was seen as exiting the euro zone. Through it all, our colleagues at The Wall Street Journal couldn’t even post the news for a time, after their Website briefly went dark.
“You had the recipe, in the middle of the week, for a very quick correction,” says Hank Smith, chief investment officer at Haverford Trust, who notes it has been almost four years since stocks’ last 10% decline. “It’s very easy to get conspiratorial.”
“We wake up the next day, and there was an answer for the NYSE—a software upgrade. China’s market is recovering a little bit. And it looks like Greece and the various European Union regulators are going to come to agreement. It’ll be a welcome relief to get Greece off the front pages of every newspaper in the country.”
As quickly as it came, the fear of a correction was gone, driving Friday’s broad rally, in which the Dow Jones Industrial Average rose 1.2%. The Dow finished the week up 30 points, or 0.2%, to 17,760, while the Standard & Poor’s 500 index finished flat at 2077. The Nasdaq Composite slipped 12 points, to 4998.
Investors’ willingness to embrace tidy answers to big concerns is another sign of the bull market’s durability. The economy looks good enough to keep investors happy, and there’s little angst about the coming wave of second-quarter earnings announcements. Alcoa (ticker: AA) kicked off earnings season last Wednesday. The aluminum maker missed estimates, but more important financial bellwethers are on tap this week. JPMorgan Chase (JPM) and Wells Fargo (WFC) report on Tuesday, Bank of America (BAC) on Wednesday, and Goldman Sachs (GS) and Citigroup (C) on Thursday.
