The link above from Chart of the Day shows the relationship between crises in the Middle East and recessions in America. Over the past 50 years Middle East problems have created spikes in oil prices which have coincided or preceded recessions. The reason is that spikes in oil lead to higher gas prices which takes away purchasing power for other items for the average consumer. I am not yet thinking that will be the case presently. However, our job as investors is to be aware and on the lookout for what may happen and react accordingly regaurdless of personal opinion. From that standpoint the chart is important information for investors to be aware of.
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.
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.
Next week should be interesting for the market. which tends to have an upward bias in the days before and during the the Fed meeting. Then comes August a tough month. Check this link for some detail http://ow.ly/nmTkt
This chart shows that on average the current market is average in duration and magnitude. That doesn’t mean the market will continue to go up. However it does mean that we should be open to the possibility. August in particular can be a tough month for the markets so use discretion at this time if you are going to invest new funds in the market.
Rating agency Standard & Poor’s says it has downgraded the U.S. credit rating to AA+ from its top rank of AAA. No one knows exactly how the markets will be impacted by this or for how long. However, it is certainly a major event. A brief and informative summary can be found at the following link: http://www.dailyfinance.com/2011/08/05/americas-credit-downgraded-what-you-need-to-know/
In any event, we have been selling stock in our client accounts as stop loss signals have triggered recently. Our managed equity accounts are 65% cash while our income accounts are 40% cash. We have also advised sales in our newsletter. The market sometimes goes up when anticipated news comes to fruition. However, a big sell off is not out of question in the stock market on Monday so I will sleep better this weekend having taken these actions and hope you will as well. We see how things shake out and go from there.
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.
There is an unusual situation developing in the financial market, and I wanted to make sure my clients were aware of it, and aware that we are observing it.
U.S. corporations are issuing bonds left and right, led by International Business Machines Corp., the world’s biggest computer-services company. A week ago, IBM raised $1.5 billion at the lowest interest rate on record; 1%, on 3-year notes. That’s just 0.3 percentage point more than the yield on government debt of similar maturity. The notes have the lowest coupon of the more than 3,400 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.
The surge in U.S. corporate bond issuance set a record last month, as yields on the debt fell to the lowest in more than four years. IBM was joined by New York-based Citigroup Inc. and ArcelorMittal, the world’s largest steelmaker, among at least five other issuers marketing debt at the same time. It’s a window of opportunity for companies, as the money is inexpensive and investors seeking yield over Treasuries are plentiful. Strong companies are able to leverage their good balance sheets to take advantage of this situation. Continue Reading…
Last week the Unemployment Rate, which came in at 10.2%; surprised economists as it came in above the consensus estimate for a reading of 9.9%. (You may recall that we predicted that unemployment would hit 10% last fall.) The Unemployment Rate is now the highest since April 1983, and it is only the second time that the unemployment rate has topped 10% since 1948! To boot, the Labor Department reported that Nonfarm Payrolls for the month of October fell by 190,000 jobs, which was worse than the expectations for a decline of 175,000 (but nonetheless less that the 263,000 drop for September). These stories garnered the lion’s share of the headlines. Continue Reading…