David R. Fried

Like it or not the stalemate in Washington is still the 800 pound gorilla in the room as far as the market goes!   The following should help you keep perspective as far as the relationship between the shutdown and your portfolio.  Chart of The day has been tracking this with various charts over the last few weeks.  so far the past has been prologue,  which doesn’t guarantee the future but should calm your nerves if they need it.

Last week’s chart illustrated how the stock market tends to perform after a government shutdown begins. Today’s chart provides further perspective by focusing on how the stock market tends to perform after a government shutdown ends. Today’s chart plots the average S&P 500 performance for the 20 trading days (approximately one calendar month) before and 60 trading days (approximately 3 calendar months) after a government shutdown ends. As today’s chart illustrates, the stock market has tended to struggle prior to the end of a government shutdown due to the fact that investors fear the unknown. Following this, the stock market has (on average) trended higher over the ensuing three months in what amounts to a relief rally. It should be noted that today’s chart is an average performance chart and that following the last 17 shutdowns, the stock market traded up 60 trading days after a shutdown ended on 12 out of 17 occasions (i.e. 70.5%).

whomever or whatever you want.  The fact is that markets go up and come down with regularity.  Analysts have given more than a few reasons for the current market correction.  One popular reason the that the market is worried about President Obama’s choice of a replacement for Fed Chairman Ben Bernanke.  Supposedly the market is worried that it will be Larry Summers.  Larry is absolutely the smartest g Continue Reading…

Most investors spend a lot of time wondering and worrying about the direction the market will go in tomorrow.  The energy is misplaced.  What the investor needs to now is what to do if the market moves in either direction.  The chart below shows that the market has broken a long uptrend that added 26% to the S&P near it’s highest point. The discerning eye will note that it broke this uptrend 6 weeks ago only to resume it shortly.   It is summer which is often weak for the markets and after a long run up many investors are expecting a correction and thinking that this decline will have follow through.  We may get it or we may not.  After all there are bright spots that would support a strong market such as; July ISM was 55.4, up from the prior reading of 50.9; The Philadelphia Fed report showed a reading of 19.8 up from 12.5 in June…  So what is the answer to the unknowable?  The answer is to know what to do in either situation.  If you own a stock that is continuing to go up even though the market may be declining then let it go up and use trailing stop losses.  If your stocks are declining you can have stops in place to take you out of the position.  This way you are prepared for whatever the market brings.

https://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=0&mn=10&dy=0&i=p82814230675&a=203404330&r=1376601304675

Enjoy your summer and feel free to call or contact me with any questions.

We publish a weekly sentiment reading in The Buyback Letter (www.buybackletter.com). Last week sentiment registered a reading of 216.00 a negative reading. We are now in the May-October time period (historically the May-October time frame has underperformed the November-April period). We use the sentiment indicator as a guide for investing new funds into the market, not as a timing tool to exit or double up on stocks. When sentiment tells us the market may be at or near a low, we consider that a buying opportunity for the investment of new money. Conversely, when sentiment indicates a market peak, we will take a more cautious approach to the investment of new money. Our sentiment indicator is an inverse indicator, so the lower the score is, the higher the reading. To get the score, we add the total bullish percentage readings of Investors Intelligence (contact tel. #914-632-0422), Consensus Index (816-373-3700), AAII Index (312-280-0170) and Market Vane (626-395-7436) and average this figure for the week. An average reading of more than 200 is considered negative and warrants a cautious approach. Readings of 240 or more have signaled market highs over the past few years, while readings of 130 or so have shown market lows for the past few years.

This reading, while not the most extreme that we have recorded, coincides with the release below from Reuters which addresses the record inflows into ETFs and stock market funds last month. The two data points would indicate some near term caution may be appropriate for the market.

Egypt and other recent geopolitical news aside, this year is already shaping up to reveal what looks like a nicely recovering economy, with strong indications that the economy will grow at its fastest pace in eight years during 2011.

Job growth is expected to double last year’s mark (granted a low high bar), leading to more income and spending, a cut in the Social Security tax should give an additional goose, and banks are loosening up business lending standards.

Late January’s advance reading of fourth quarter GDP showed it expanded at an annual rate of 3.2% — the third best quarterly showing of the recovery to date, revealing six quarters in a row of growth. We would not be surprised to see a GDP growth of 4% this year.

And last month’s official results from the Federal Reserve’s survey of economic conditions revealed the U.S. economy ended 2010 on an encouraging note, with all parts of the country showing improvements – factories produced more, shoppers spent more and companies hired more.

This week Home Depot said that they will be hiring 60,000 temporary employees for the next few months to handle the spring season which is their busiest time of the year. Granted temporary jobs are not permanent jobs. However, it has been a long time since we have seen that in the headlines!

Stocks have been rebounding and investors who stayed in the market have seen some of their wealth restored. In fact, in January, stocks had climbed to new 2-year highs, with the Wilshire 5000 at a 2 1/2-year high. The broad market had nearly doubled since the March 2009 low. S&P 500 earnings for 2010 are currently expected to be $82.18, which would represent growth of 42.6% from 2009. Current estimates expect 2011 S&P 500 earnings to be $95.06, which would be a new all-time high if it occurred. Based on the current outlook, S&P 500 earnings might reach a new record as soon as mid 2011.

All of this — more jobs, more income, more spending by consumers and businesses – is bullish for the economy. And it is a good landscape in which to be an investor.

Continue Reading…

These days, even the most naturally upbeat and optimistic of us can’t read a newspaper or Internet site, or hear a radio or TV broadcast without being overtaken by a feeling of desperation. As our country and the rest of the world struggles with economic dislocation, the likes of which we haven’t seen since the Great Depression, the pain is widespread.

Amid all the job losses, negative returns, failing businesses, defaulting mortgages, plunging stock prices, frightened consumers, anxiety and trauma, though, is there any good news?

Maybe yes. There are a number of developments that, taken alone, might not be game-changers, but put into a collective context, may give us the hope we need. We know that the overwhelming majority of news has been bad and we do not intend to belittle or minimize it. However, it is springtime and the following facts may prove to be the first seedlings of better times.  Continue Reading…

As we take stock of the market trends – which we do regularly – we like to highlight some of the most important recent economic activity. Given the continuing market turmoil, it is important to do so to gain perspective and context.

First, a salient quote:

“A bear market is a period of time during which people who think this time is different sell their common stocks – at prices which will never be seen again – to people who know that this time is never different.”
–Nick Murray Interactive, 3/13/09

I want to touch on a few developments that shed light on the positive direction the market seems to be heading. Most of the following is either not reported or under reported by the everyday news media.  Continue Reading…

If you have whiplash from watching the stock market there is a good reason. According to Chart of the Day, 19% of all trading days over the last three months have been either up or down more than 4%. This is, in fact, the most volatile the stock market has been since the 1929-1932 period. If you think you have never seen anything like this, it is because you haven’t. Additionally, the current correction is the largest since World War II. For many investors, it may be difficult to see the big picture amid the clatter and chatter of this ongoing financial crisis.

The financial crisis that unfolded in the banking and brokerage industries has been mitigated (if not solved) for the time being. Unfortunately, the damage from the sub-prime crisis has spread and we now have a cyclical recession. This is a global recession — Japan and Germany are also experiencing recessions and many countries around the world are also slowing down as the American consumers put the brakes on. Fortunately, this recession is accompanied by low interest rates, low inflation and now lower gas prices. However, this past week presented some new information which we need to digest and to which we must adjust. Continue Reading…

Given the unprecedented financial crisis of the last several weeks and the intense daily swings in the market, we wanted to reach out to you directly to discuss what has happened. First, we have spoken to many of you over the past few weeks. We know it is very painful to live through major market declines. It is painful for us as well, as we are invested in the same portfolios as you are.

After Thursday’s trading the S&P was down about 35% for the year and about 40% from its all-time high. The last few weeks have treated us to numerous roller coaster rides featuring daily market swings of 5-10% from the daily low to the high! All this is out of our control. Continue Reading…

I wrote the article below this note about a week and a half ago, which, given the drastic and rapid market decline, feels like about 5 dog years!

Clients have been asking lots of questions — how much longer will this drop be? Should we sell stock? What should we do? I thought the current situation required me to shed some additional light on my actions, or in this case inaction, and what my thinking is. So I thought that I would address tose issues first followed by the article

Market Q & A

Clients have been asking lots of questions — how much longer will this drop be? Should we sell stock? What should we do? I thought the current situation required me to shed some additional light on my actions, or in this case inaction, and what my thinking is. Continue Reading…