| DJIA | 10564.38 | |
| NASDAQ | 2340.68 | |
| S&P 500 | 1140.44 |
Market NewsDuring a two-day media tour in New Your City, Chief Investment Officer Wayne Schmidt made an appearance on Fox Business today. Here is the temporary link, and the formal broadcast will be featured on our Press Room page tomorrow.
The equity market bottomed on March 9, 2009 and since then has been on a one way ride higher with eight of the next nine months producing gains. Here is a look at 2009 by the numbers.
Stock Market Benchmarks:
12/31/09 12/31/08 Return
When 2009 started most market prognosticators did not project returns like this. When we bottomed in early March, the emotional state of the market was gripped by fear and pessimism. History has taught us numerous times to buy stocks when fear is rampant and sell when greed rules. It is easy to say this, but much harder to implement. To avoid the trap of selling low and buying high try a new approach. My advice is to not let your market opinion (or anyone else’s market opinion that you follow) get in the way of investing properly. For 2010 and beyond it is important for the individual investor to build a diversified portfolio using ETFs and/or mutual funds. Hold your core equity sectors (U.S, stocks and International equities) through thick and thin and be opportunistic in the “explore” segments of the market using gold, real estate, emerging markets, energy, and agriculture as places to add value. This is our approach at Gradient Investments and it served our clients well in 2009.
Key Bond Rates: 12/31/09 12/31/08 Return
The U.S. fixed income market has never had the disparity of returns among the sectors like we saw in 2009. Long U.S. Treasuries had their worse total return year ever and corporate bonds had one of their best. The numbers above tell the story. 2010 will not be a repeat of last year. The entire investment grade bond market yields 3.5% and fixed investors should set their return expectations near this number. I expect Treasuries to continue to be under pressure with corporate bonds and mortgage backed securities offering slightly better value. The individual investor needs to own these sectors via EFTs and no-load mutual fund. We are moving our durations shorter to protect against a likely increase in interest rates in 2010.
The start of a new year is a perfect time to review your portfolio, assess your portfolio’s risk level and check to see if it is in line with your personal risk tolerance level. It has been a wild ride the past two years. Moving forward, spend less time worrying about the market’s next move and more time focused on your investment approach. You will sleep better and enjoy better investment results.
Gradient Investments, LLC made a worldwide media splash last week with Chief Investment Officer Wayne Schmidt, CFA, MBA being featured in numerous publications, including Forbes.com, WallStreetJournal.com, ABC.com, Rueters.com whose content is published worldwide, and others. Click to read the featured articles.
http://online.wsj.com/article/BT-CO-20091215-712546.html
http://news.yahoo.com/s/nm/20091215/bs_nm/us_markets_stocks
http://www.mainstreet.com/article/moneyinvesting/news/when-will-fed-raise-interest-rates
Schmidt is a great example of the talent and expertise available through Gradient Investments. Call us today at 888.824.3525.
From a fundamental prospective, the 2009 equity markets has most investors scratching their heads wondering how this market reached these levels with the economic news so weak. The unemployment rate hit a 26-year high at 10.2% unemployment and this does not count the 6-7% of population that has quit looking for employment. The federal deficit is now measured in trillions, taxes are certainly headed higher, yet the stock market is up over 66% from the lows in March. Historically, the equity market leads the economy by six to nine months so, if true, we should start seeing improvement in the U.S. economy very soon. With the mixed signals on the fundamental side, what message do the market technicals hear.
Technical analysis is a method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future market trends. Technical analysts believe that they can accurately predict the future price of a security by looking at its historical prices and other variables.
While the S&P 500 has appreciated 66.6% from its March 666 lows to its current 1,110, it is still in technical terms defined as Bear Market Rally. A weekly closely above 1,126 on the S&P 500 would represent a 50% retracement of the Bear Market Phase and mark an official technical end to this Bear Market. The S&P high was 1,566 in October 2007 and the low was 666 in March 2009. 1,126 would mark the half way point back to the previous high from the low point. The 1,126 level on the S&P 500 is a line in the sand for market technicans. The market will test this line and if it breaks through on a weekly close, expect prices to move higher and this level will become support for the market. If the market fails at 1,126 expect a correction in stock prices.
While it is exciting to watch the market story play out, do not forget that your investment goals should be long-term. Build your investment portfolio with the right time horizon and risk levels, then the never ending market volatility will not throw you off course.
The S&P 500’s monthly streak of posting seven consecutive monthly gains came to an end in October 2009. The 1.98% drop in October was tranquil as compared to past Octobers. During the seven month streak from March 2009 through September 2009, the S&P 500 gained a surprising 43.80%. Intuitively, one would expect a major pullback after the run we had, but history tells a different story. In a study done by Greg Blaha and Ryan Malo at Bianco Research, LLC, they found in the fourteen previous market streaks of seven months or longer, the S&P average return was 4.16% for the following quarter and 7.84% for the following year. While the majority is expecting a major correction, don’t be surprised if the market continues to confound the consensus.
On the economic front, there is continuing improvment in the numbers and we expect the U.S. economy to show a 3.5% growth rate in the second half of 2009, with growth continuing positive through 2011. The Federal Reserve is likely on hold until 2011 before we start the upward moevment in short-term interest rates. The Fed has pumped massive amounts of liquidity into the economy and this will need to be withdrawn at the right time and pace. Unemployment will continue to be a drag on the economy, but will peak near 10% and gradually improve over the next few years.
The markets and many portfolios have been whipsawed over the past 15 months and this seven month streak gives everyone a second chance to anaylze their financial situation. This is the perfect time to make a thorough evaluation of your portfolio to make sure you are diversified within and among the asset classes and the risk of your portfolio is aligned with the risk you can afford. If the risk in your portfolio matches your personal goals, the next round of market volatility will be much less stressful.
The equity markets bottomed on March 9, 2009 and since then has been on a one way ride higher with seven consecutive months of gains. Here is a look at the first nine months of 2009 by the numbers.
Stock Market Benchmarks:
9/30/09 12/31/08 Return
Some observations from the first nine months of the year: smaller capitalization companies outperformed larger companies by a large margin, the typical defensive sectors were the under performers - utilities, energy, and real estate, the financial sector which was on the ropes a year ago has made a dramatic rebound from the lows, and commodity prices were generally higher. The third quarter was the best performing quarter for equities since 1998.
Key Bond Rates: 9/30/09 12/31/08 Change
The fixed income market had mixed results in the first nine months of 2009. U.S. Treasury securities were the worst performing sector within the fixed income market as interest rates on longer maturity bonds moved higher, driving prices lower. Specifically, Treasuries investors are concerned about the massive amount of new supply coming to market as the government continues to spend and expand deficits. Mortgage-backed securities performed better than Treasuries as mortgage rates are basically unchanged for the year to date period. The corporate bond sector, both the investment grade corporate bond and high yield sections produced positive returns in the first half as corporate bonds rates there actually declined as risk premiums tightened. The total returns from the high yield sector up an amazing 48.5% this year as measured by the Merrill Lynch High Yield Index.
With the market rally, this is the perfect time to review your portfolio, access your portfolio’s risk level and check to see if it is in line with your personal risk tolerance level. After September and October of 2008, we all have a better understanding of risk and the importance of diversification.
Historically, September and October have not been kind months for the equity markets. A study of the S&P 500 total return by month from 1926 to 2008 has proven this point. September is the only month of the year with average returns in negative territory, coming in at -0.91%. October is the second worst performing month of the year with a positive 0.34% average return for the month. The U.S. Equity market has enjoyed a 52 percent rebound from a 12-year low on March 9 left the S&P 500 valued at about 19 times the profits of its companies, the highest ratio since June 2004.
The Shanghai Index was down 6.8% overnight and has the U.S. market is set to open lower this morning. Overnight, the U.S. stock-index futures dropped, indicating the S&P 500 will trim its sixth straight monthly gain. Futures on the S&P 500 expiring in September lost 0.7 percent to 1,020.5 at 8:38 a.m. in New York. Dow Jones Industrial Average futures slipped 0.6 percent to 9,477, while Nasdaq-100 Index futures dropped 0.9 percent to 1,628.5.
While a collapse of 2008 proportions is not likely, a manageable pullback from these levels would be healthy for the market. This is the perfect time to review your portfolio, access your portfolio’s risk level and check to see if it is in line with your personal risk tolerance level. After September and October of 2008, we all have a better understanding of risk and the importance of diversification.
The markets seem to find a way to cause maximum pain to the largest number of people. A year ago, investors were generally very bullish and their portfolios where higher in risk then their true risk level thresholds. The October to March time period caused many investors to capitulate to a defensive portfolio position only to have the market rebound, leaving many in the dust.
From a technical standpoint, the market has reached an equilibrium point between bulls and bears and seems to be setting itself up for a long period of slow economic growth. The next economic recovery will likely begin in 2010 and it may feel like the recession never ended. The factors leading to a long, slow global economic recovery will be: U.S. consumer retrenchment, financial sector deleveraging, weak commodity prices, increased government regulation and involvement in the economy, protectionism and deflation. These factors are longer term in nature and it will take years, not months to change the path we will travel.
This is not bad news, it is just the likely landscape we are left to navigate. Today is always the right time to evaluate your investment portfolio, fairly evaluate your true risk tolerance and set realistic investment goals. Building a diversified balanced portfolio that provides for upside participation, income generation, and a downside cushion is the successful formula for the long slow ride back to a healthy economy.
The U.S. stock market as measured by the S&P 500 rose 0.8 percent last week to 987.48, the highest since Nov. 4, capping its fifth straight monthly advance. This benchmark rebounded an incredible 46 percent from a 12-year low on March 9. Last week, the Dow Jones Industrial Average rose 78.37 points, or 0.9 percent, to 9,171.61, extending its monthly advance to 8.6 percent, the biggest since October 2002. The Russell 2000 Index of small companies added 1.5 percent during the last week of July to 556.71.
The recent rally in stock prices has been fueled by companies reporting earnings above expectations. These companies include Motorola Inc., MasterCard Inc., Amgen Inc., the world’s largest biotechnology company, and Dow Chemical Co., the largest U.S. chemical maker. About three-quarters of the 148 companies in the S&P 500 that released second-quarter results this week topped estimates.
While stocks have been perofrming remarkably well, U.S. Treasuries rates are on the rise causing prices to decline. The two-year note yields rose the most in eight weeks after mixed results at this week’s four note auctions worried investors about the huge supply of government debt. U.S. Government securities have declined in price for four consecutive months, the longest losing streak since 1996. The Treasury sold $115 billion of notes over the five days ended July 31, including a record $42 billion of two-year securities and $39 billion of debt maturing in five years.
US equity markets rose yesterday after Intel forecast a stronger third quarter and wary investors heaved a sigh of relief from Fed’s improved take on the economy. Major stock indices were up around 3% on the day, with the Dow Jones industrial average posting its biggest one day advance in nearly four months. The buoyant mood pressured treasuries as investors shied away from safe havens. Today, concerns around CIT’s ultimate fate is creating a mini flight to quality trade as Treaury prices as up this morning.
Stocks prices shot up Monday after analyst Meredith Whitney’s optimistic forecast on Goldman Sachs (NYSE:GS) triggered an equity buying spree. Share prices rallied thereafter as investors snapped up banking and industrial stocks and the gains spilled over to the broader market. Goldman’s fixed income and trading businesses posted impressive numbers. Then, Intel’s (NASDAQ:INTC) much better quarterly sales and its upbeat third-quarter outlook encouraged investors further as they brushed aside concerns over CIT Group Inc. (NYSE:CIT).
On Wednesday, the Dow Jones industrial average gained 256 points, or 3.1%, to close at 8,616.21. The S&P 500 index added 27 points, or 3%, to 932.68 and the tech-laden Nasdaq leapt 63 points, or 3.5%, to 1,862.90. The Treasury’s benchmark 10-year note declined 1 2/32, to 96 2/32, and the yield rose to 3.60% from 3.47% late Tuesday. In a broad show of strength, advancing shares outpaced declining issues by nine to one, even as NYSE volume remained a moderate 1.4 billion shares.
This morning stocks are basically unchanged. JP Morgan Chase (NYSE:JPM) reported numbers that bettered analysts’ projections. The firm cited strength in trading operations and record investment banking returns, but did admit operations were hurt by “the continued high levels of credit costs in consumer lending and card services, which we expect will remain elevated for the foreseeable future.
