Dr. Jekyll and Mr. Hyde Market
The story starts with after drinking a potion of his own creation; Jekyll is transformed into the smaller, younger, cruel, remorseless, evil Edward Hyde, representing the hidden side of Dr Jekyll's nature brought to the fore. Dr Jekyll has many friends and has a friendly personality, but as Mr Hyde, he becomes mysterious and violent. As time goes by, Mr Hyde grows in power. After taking the potion repetitively, he no longer relies upon it to unleash his inner demon i.e. his alter ego.
It seems that at times our market is similar to that of Dr. Jeckyll and Mr. Hyde the past two weeks. The market seems to have a ‘split personality’ of sorts.
From the worst Thanksgiving week since 1932 , to the best weekly gain since 2009, last week illustrated how fickle the stock market can be. The Dow Jones Industrial Average finished up 7% for the week, bouncing back from a 5% loss the previous week on news about… are you ready for it… positive developments in Europe.
Basically, several central banks made dollar financing cheaper through swap arrangements, and finance ministers took steps to expand the European Financial Stability Facility. Just as bad news from Europe pushed markets down during Thanksgiving week, good news from Europe pulled markets back up last week. At this point, it should be clear to everyone that we are dealing with highly Europe-charged investor sentiment right now.
So does last week’s rally mean we’re out of the woods and the bulls are back on top? It’s possible, but we don’t recommend counting on it. While some analysts are expecting stocks to maintain their momentum on the “Santa Clause effect” (Stocks have risen in December nearly four out of five times since 1945, according to S&P Capital IQ, and have risen almost 2% in December after dropping in November – as they did last month) , most understand that Europe is still a wild card.
When we see encouraging news and market rallies, it is easy to become excessively positive when we should actually be cautiously optimistic. In the same manner, when we see bad news and steep declines, it is easy to become excessively negative when we should actually be moderately cautious. What is our point? In times of uncertainty and volatility, it is particularly critical to stick to a long-term investment strategy that aligns with your personal goals and risk tolerance. We encourage you to avoid letting short-term market moves and flashy headlines influence your investment decisions. If you have any questions about whether your current financial plan is still right for you, please feel free to reach out to us. We are always here to help guide you through turbulent times.
ECONOMIC CALENDAR:
Monday – Factory Orders, ISM Non-Manufacturing Index
Tuesday – Bank of Canada Announcement
Wednesday – EIA Petroleum Status Report, Consumer Credit
Thursday – BOE Announcement, ECB Announcement, Jobless Claims, Wholesale Trade
Friday – International Trade, Consumer Sentiment
Data as of 12/02/2011 1-Week YTD 1-Year 5-Year 10-Year
Standard & Poor's 500 7.39 -1.06 1.86 -2.18 0.92
Dow 7.01 3.82 5.78 -0.29 2.20
NASDAQ 7.59 -0.98 1.84 1.77 3.61
MSCI EAFE 9.34 -11.1 -8.09 -3.90 2.30
10-year Treasury Note (Yield Only) 1.97 N/A 3.00 4.43 4.74
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
It’s hard to believe it’s already been 10 years since Enron filed for bankruptcy on December 2, 2001. At the time the largest bankruptcy in U.S. history – the once high-flying energy company cemented its reputation as the very symbol of corporate fraud.
The unemployment rate fell by 0.4 percentage points to 8.6% in November, and nonfarm payroll employment rose by 120,000, the U.S. Bureau of Labor Statistics reported Friday. Employment continued to trend up in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down.
Treasury Secretary Timothy F. Geithner will head to Europe next week to meet with French President Nicolas Sarkozy, new Italian leader Mario Monti, and other key government officials to discuss their efforts to resolve the debt crisis. Geithner, who has been urging European leaders to take more forceful action, will travel there for three days beginning Tuesday "for discussions with his counterparts on their efforts to reinforce the institutions in the Euro area," the Treasury Department said Friday.
The coming year-end spending spree after so much debate over budget deficits shows just how hard it is to stem the government's flow of red ink. Lawmakers are poised to spend $120 billion or so to renew a Social Security tax cut that averaged just under $1,000 per household this year. They're ready to commit up to $50 billion more to continue unemployment benefits to people out of work for more than half a year.
Quote of the week
‘Know that everything will happen at just the right time. At the right place, with just the right people’ Wayne Dyer
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
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.
Google 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.
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Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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