Monthly Archives: July 2013

If aesop was right, Europe may eventually reach the end of recession..

Weekly Market Commentary

July 29, 2013

The Markets

If it’s not stocks, it’s bonds!

In a turnaround worthy of Bruce Willis in a ‘Die Hard’ movie, expectations for second quarter’s corporate earnings growth soared from below expectations, on average, in the previous week to beating expectations last week. Earnings growth estimates shot up to 4.1 percent which was a significant change from last week’s 2.8 percent. Of the companies that have reported so far, more than one-half have performed better than expected – an improvement on the last four quarters’ performance.

Whether it is earnings performance or other factors, consumers have become more confident than they’ve been in years – six years to be specific. The Thomson Reuters/University of Michigan’s consumer sentiment index beat expectations for June even though consumers expect growth to slow next year.

Things were not so rosy for bond markets which have been selling off since early May on speculation the Fed will temper quantitative easing before the end of the year. Yields on 10-year Treasuries have ascended from about 1.5 percent in early May to more than 2.5 percent last week.

Ben Bernanke’s impending retirement also has bond markets roiled. Speculation about who will become the next chairman of the Federal Reserve, and how his or her policies will differ from Bernanke’s, is unsettling investors and creating potential for bond market volatility, according to MarketWatch.

On the public finance side of the market, municipal bond investors are reeling after Detroit’s bankruptcy declaration. The city’s dire circumstances have caused some pundits to look more closely at municipal credits. According to Barron’s, 83 percent of Moody’s Investors Service’s second quarter municipal bond rating changes were downgrades.

The drama and suspense is likely to continue next week. The Fed begins a two-day policy meeting on Tuesday, and an abundance of economic indicators – including the S&P Case Shiller Home Price Index, PMI Manufacturing Index, and employment situation reports – will be released.


Data as of 7/26/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.0%

18.6%

24.4%

14.9%

6.5%

5.4%

10-year Treasury Note (Yield Only)

2.6

N/A

1.4

3.0

4.0

4.3

Gold (per ounce)

2.7

-21.4

-17.7

4.0

7.6

13.8

DJ-UBS Commodity Index

-2.3

-9.0

-11.1

-0.8

-9.2

0.9

DJ Equity All REIT TR Index

-1.5

9.2

12.8

15.7

8.4

11.0

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

If aesop was right, Europe may eventually reach the end of recession. You’ve heard about the tortoise and the hare. It’s a fable that has much to say about unequal partners, overconfidence, and perseverance – topics that leaders of the European Union (EU) may ponder when they’re not poking and prodding member states in efforts to provoke structural reform and growth.

Last year, the head of the European Central Bank (ECB) announced that ECB would do whatever it took to save the euro. Nine months later, Europe still is plodding through recession. During the first three months of this year, gross domestic product in the region declined slightly year-to-year. The European Commission projects the decline will be a bit bigger over the full year (down 0.4 percent). That, however, will be an improvement over 2012’s 0.6 percent contraction.

The good news, according to The Economist, is current account deficits (the difference between a country’s total imports and its total exports) and primary budget balances (budgets without interest payments included) have improved in many EU countries. In fact, this year it appears the biggest primary budget deficit (about 3.9 percent) belongs to the United Kingdom. The bad news is government debt levels remain very high in many EU nations. In May, Peter Praet, a member of the ECB’s executive board, said:

“…the euro area needs to persevere in fiscal consolidation efforts and reduce steadily the government debt ratio. Despite the important progress on fiscal consolidation, debt ratios have yet failed to stabilize in most euro area countries…The euro area government debt ratio is projected to rise further to above 95% of GDP in 2013 – far above the 60% Maastricht reference value – with debt ratios displaying large differences across countries.”

Research from the National Bureau of Economic Research has found growth typically slows – by about 1 percent – when a nation’s debt level reaches 90 percent of gross domestic product. If they’re right, growth in the EU probably will be slow overall. Let’s hope it’s steady, too.

Weekly Focus – Think About It

“Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.”

Siddhartha Gautama, also known as Buddha

Best regards,

Margie Shard, CFP®

President & Wealth Advisor 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.           

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at 1537 N. Leroy St., STE D, Fenton, Michigan 48430.

Sources:

http://www.reuters.com/article/2013/07/26/usa-stocks-weekahead-idUSL1N0FW1WN20130726

http://www.dailyfinance.com/2013/07/26/consumer-confidence-rises-july-six-year-high/

http://www.cnbc.com/id/100914877

http://blogs.marketwatch.com/thetell/2013/07/26/why-the-bond-market-hates-larry-summers/

http://blogs.barrons.com/incomeinvesting/2013/07/26/of-all-q2-muni-rating-actions-83-were-downgrades-moodys/?mod=BOL_hpp_blog_ii

http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on “S&P Case Shiller Home Price Index” under Tuesday column; “PMI Manufacturing Index” under Thursday column; and “Employment Situation” under Friday column)

http://www.economist.com/blogs/graphicdetail/2013/07/european-economy-guide

http://www.investopedia.com/terms/c/currentaccountdeficit.asp

http://www.ecb.europa.eu/press/key/date/2013/html/sp130516.en.html

http://www.nber.org/digest/apr10/w15639.html

http://thinkexist.com/quotation/health_is_the_greatest_gift-contentment_the/147326.html

The Markets July 24, 2013

Singing the earnings song…
 
Each year, in January, April, July, and October, most publicly-traded companies announce their corporate earnings results. These announcements can have a dramatic effect on companies’ share prices – and markets – especially when companies don’t meet analysts’ expectations.
 
The way a company’s share price moves after an earnings announcement can strike a discordant note. For instance, a company can have a great quarter, but if it earns a few pennies per share less than expected, its share price may tumble. Likewise, a company can be in dire straits, but if it produces a few cents more than expected, its share price may climb.
 
Last week’s earnings song was a bit melancholy. By the end of the week, about one-fifth of the companies in the Standard & Poor’s 500 Index had submitted their reports and earnings were on track to grow by about 1.5 percent year-to-year. That’s a bit lower than the 4.1 percent earnings growth analysts had expected, but it was in positive territory.
 
Unfortunately, as The Wall Street Journal pointed out, financial companies have exceptionally easy year-to-year comparisons. When they were pulled out of the mix, earnings hit a low note: down by almost 3 percent from last year, according to FactSet. That’s worse than analysts expected at the start of the quarter.
 
Earnings were weak relative to expectations, but the S&P 500 still finished higher for the week.  That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program.
 

Data as of 7/12/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.7%

18.6%

22.9%

16.5%

6.1%

5.6%

10-year Treasury Note (Yield Only)

2.5

N/A

1.5

3.0

4.1

4.2

Gold (per ounce)

1.3

-23.5

-18.2

3.1

6.2

14.0

DJ-UBS Commodity Index

0.9

-6.8

-11.1

0.7

-9.5

1.1

DJ Equity All REIT TR Index

1.2

11.0

13.9

18.9

8.3

11.3

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
there’s been an innovation in measuring innovation. Innovation is one of those things. It’s hard to fully describe, but it can be awfully important to countries and economies.
In recent years, there have been some remarkable innovations, such as car sharing and the Oakland A’s use of sabermetrics; and some less remarkable ones, such as airline baggage fees and the detachable dog sack (which allowed Fido to ride in a cloth carrier attached to the outside of the car).
 
In March, panelists at the Wharton Economic Summit 2013 discussed the concept of innovation. Although they didn’t all define it in the same way, they suggested innovation is using something new or known in a different way, different time, or a different place; essential for companies to grow; useful; transformative; an approach that addresses a major want or need; not always easy to spot.
 
It’s clear innovation means different things to different people. Cornell University, INSEAD, and the World Intellectual Property Organization, which collaborate on the Global Innovation Index, said their benchmark, “recognizes the key role of innovation as a driver of economic growth and prosperity, and adopts an inclusive, horizontal vision of innovation applicable to both developed and emerging economies.”
 
They refined the index for 2013. According to The Economist:
 
“Instead of objectively counting the inputs and outputs, it relies on nuance. For example, rather than ranking overall education, it looks at the top three universities, since elite institutions may be more important than the average. Instead of counting each patent, it tracks only those filed in at least three countries, which suggests it is a more valuable technology. And, rather than look at scientific journal articles en masse, the index includes how often they are actually cited.”
 
So, using these innovative metrics, which countries rank the highest in innovation? Among rich countries, the United States, Britain, and Germany are one, two, and three. In middle income countries, China, Brazil, and Russia take top honors.
 
Weekly Focus – Think About It
 
“Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.”
Siddhartha Gautama, also known as Buddha
 
Best regards,
 
Margie Shard, CFP®
 
P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
 
Securities offered through LPL Financial Services, Member FINRA/SIPC.
 
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
                           
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
 
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
 
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
 
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
 
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
 
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
 
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
 
* Past performance does not guarantee future results.
 
* You cannot invest directly in an index.
 
* Consult your financial professional before making any investment decision.
 
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at 1537 N. Leroy Street, Suite D, Fenton MI  48430.
 
Sources:
http://www.investopedia.com/terms/e/earningsseason.asp
http://www.investopedia.com/financial-edge/1010/4-things-to-know-about-earnings-season.aspx
http://blogs.wsj.com/moneybeat/2013/07/19/morning-moneybeat-whats-that-you-said-about-a-strong-earnings-season/
http://money.cnn.com/2013/07/17/investing/premarkets/
http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf (Page 6)
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3242
http://www.foxnews.com/story/2009/03/19/century-disasters-top-10-worst-inventions-in-history/
http://www.globalinnovationindex.org/content.aspx?page=GII-Home (Click on the Quick Link “GII 2013 Report,” then “Download the GII 2013 Report here” and go to page V)
http://www.economist.com/blogs/graphicdetail/2013/07/daily-chart-14
http://www.brainyquote.com/quotes/authors/b/buddha.html#FspDAtGzW65EdVdm.99

Half-time 2013: An analysis of market events from the first half of the year

Join us at Lucky’s Steakhouse located in Fenton, MI on September 12 from 6:00pm-7:30pm as Margie Shard, CFP® analyzes the events that took place in the market for the first half of 2013. Hear her ideas on how those events, and others, may unfold and possibly impact the remainder of the year.

Call our office at 810-714-5566 to RSVP. Seating is limited.