Can the Markets hold onto these recent gains?
Markets were upbeat last week, closing positive for the second week in a row as traders digested the first fourth-quarter earnings reports and fresh economic data. The S&P 500 was pushed to a new five-year high, gaining 0.38%, while the Dow rose 0.4%, and the Nasdaq increased 0.77%.
The debt ceiling debate is already in swing, with headlines dominated by the idea of minting a trillion dollar coin as a way to sidestep a vote on the ceiling. The comedic suggestion was made in an act of political one-upmanship but isn’t a true solution. We hope that with that suggestion out of the way, Congress can get back to its job of making necessary decisions to tackle the deficit and put the U.S. back on firm fiscal ground.
With equities at five-year highs, it’s time to start thinking about whether the fundamentals can support further upside. Next week, analysts will turn their attention to a slew of economic reports and more earnings data. According to FactSet Research, S&P 500 companies are expected to report overall earnings growth of 2.4% for the fourth-quarter of 2012. This is much better than the third-quarter’s 1% decline; however, much of the growth is expected to come from the financial sector, meaning that other sectors are expected to see growth of just 0.2%.
Perhaps even more important than the data will be the attitude of business leaders about their prospects this year. Their opinions could provide us with an important clue about growth prospects for the U.S. and global economies. Analyst opinions are mixed, as some expect an upbeat outlook from businesses, while others think we’ll see more guarded opinions.
Analysts will be also listening closely to Ben Bernanke’s first appearance of the year; scheduled for Monday, January 14, 2013 at 4:30 PM. The Fed chairman will be speaking about the economy, and some Fed watchers believe he may discuss a potential end to the Fed’s asset-purchase program.
Whichever way markets move in the coming weeks, we’ll be paying close attention and seeking out opportunities where they arise. While we’re pleased with the way markets have performed thus far, we’re always on the look out for reversals and turbulence, and we strive to build portfolios that can withstand short-term gyrations..
HEADLINES:
Economic growth indicator reaches 18-month high. A measure of future U.S. economic growth rose to its highest level since August 2011, indicating that with fiscal cliff worries behind us, we may have a stronger economy ahead. However, the weekly indicator is volatile, so analysts will be watching future reports closely.
Jobless claims rise, seasonal volatility likely. Despite a rise in jobless claims, details of the report suggest that the job recovery is still ongoing. Jobless claims tend to be very volatile after the holidays as seasonal workers are laid off. However, layoffs have declined and an increasing number of people are voluntarily leaving their jobs – both signs of a healthier job market.
U.S. trade deficit widened in November. A surge of imports led November’s trade gap – exports minus imports – to widen 16%, surprising economists who had expected the deficit to shrink. This could point to slowing growth in the fourth quarter for when a country imports more than it exports, cash is pulled out of the economy.
Oil prices fall as China’s inflation rises. Oil prices fell Friday as analysts became concerned that China’s rising inflation will lead central bankers to rein in stimulus measures, leading to slower growth in the oil-hungry nation.
QUOTE OF THE WEEK:
“The ability to concentrate and to use your time well is everything if you want to succeed in business – or almost anywhere else for that matter.” – Lee Iacocca
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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.
Diversification does not guarantee profit nor is it guaranteed to protect assets
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.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.
The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.
The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.
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.
Consult your financial professional before making any investment decision.
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.
By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
After a strong start to the new year, what happens next?
Markets finished the first week of 2013 with a bang, upbeat over resolution surrounding fiscal cliff talks. The S&P 500 closed up 4.6% for the week, hitting a high of 1,466 on Friday; a level not seen since December 2007. The other indices also closed up, with the Dow gaining 3.8% and the Nasdaq climbing 4.77%. Although soon-to-be-released fourth-quarter earnings data could slow things down, a flood of new pension and 401k money has potential to keep the rally going. Only time will tell the story.
Though you may be following this already, we feel a responsibility to recap some recent events and their outcomes. The U.S. Senate was finally able to reach a deal with the Whitehouse in the early hours of January 1, after which the House ratified the American Taxpayer Relief Act of 2012. Major provisions of this bill include:
- Raise $600 billion in revenue over 10 years through tax increases.
- Postpone for two months the start of $1.2 trillion in automatic spending cuts. (Unfortunately, postponing spending cuts just means that we’ll be revisiting the issue again soon.)
- Permanently extend the Bush Tax Cuts for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at the highest rate of 39.6%. For earners in the top bracket, capital gains and dividend tax rates would return to 20% from 15%.
- Permanently patch the Alternative Minimum Tax (AMT) and index it to inflation.
- Extend unemployment benefits for one year for the long-term unemployed.
Although Americans are relieved that the fiscal cliff quagmire is over, a Gallup poll shows that opinions are split over the deal, with 43% showing approval, while 45% disapprove. There is still much work to be done when it comes to balancing our nation’s finances, and this deal barely puts a dent in the budget deficit, but we hope lawmakers will remain committed to formulating lasting solutions.
Looking ahead, fourth quarter earnings will kick off this week and American corporations will be under the microscope as analysts try to decide whether fundamentals support further market upside.
HEADLINES:
Lenders nearing a deal on foreclosure abuse claims. A $10 billion settlement to resolve claims of foreclosure abuse among major U.S. lenders is expected to be announced this week. The settlement covers abusive practices like flawed paperwork and botched loan modifications and will be split among homeowners who have already lost their houses and those who are in danger of foreclosure.
Hostess Brands may be purchased. Flowers Foods Inc. and Grupo Bimbo SAB are in discussions to acquire pieces of Hostess Brands Inc.'s bread business, as the maker of Wonder Bread and Twinkies sells off assets and liquidates. Hostess, whose brands include Wonder Bread, Nature's Pride, Home Pride, Merita, and Butternut, is still determining how to split up assets and package them for buyers, said people familiar with the talks.
Health insurers are seeking double-digit premium increases. Despite federal regulations seeking to prevent high premium increases, health insurers are seeking to raise premiums, by as much as 22% in some cases. Some states have insurance commissions with the ability to strike down rate increases.
U.S. and China leave Europe in the dust. Despite fears of contagion, it appears that the economies of China, the U.S, and much of the developed world have succeeded in decoupling from troubled Europe. According to manufacturing surveys released this week, the U.S. remains in growth territory, while Europe is firmly mired in a recession.
QUOTE OF THE WEEK:
“Doing what you love is the cornerstone of having abundance in your life’ Dr Wayne Dyer
Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!
If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.
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.
Diversification does not guarantee profit nor is it guaranteed to protect assets
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.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.
The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.
The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.
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.
Consult your financial professional before making any investment decision.
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.
By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
A look back at 2012, a look ahead of 2013
With 2012 behinds us, it’s time to take a look at the events that shaped the year and consider what lies ahead. 2012 was a year defined by tremendous hope as well as ongoing fears about the future. Despite a painfully slow recovery, GDP growth looks like it may end up exactly where economists said it would: between 2.2 and 2.7% for the year. Markets also made major strides, helped along by a last-minute rally as a fiscal cliff compromise approached. Let’s take a look at some of the major highlights of 2012:
The Fiscal Cliff
Going into 2013, the story on everyone’s mind was the fiscal cliff. Fiscal cliff debates provided budget watchers with a real nail biter as Senate discussions continued early into the morning on January 1. While the Senate and White House were able to hammer out a last-minute 2 AM compromise, the deal met resistance in the House on Tuesday, and discussions went late into the evening. The House eventually voted to approve the plan, but negotiations are by no means over. Congress must approve an increase in the $16.4 trillion debt ceiling in mid-February before current federal funding runs out, and another government shutdown threat looms. Whatever happens, we are committed to keeping you informed about this issue.
According to Congressional sources, here are a few of the major provisions of the deal:
- Postpones for two months the start of $1.2 trillion in automatic spending cuts known as sequestration.
- Raises $600 billion in revenue over 10 years through tax increases on wealthy Americans.
- Permanently extends the Bush Tax Cuts for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at the highest rate of 39.6%. For earners in the top bracket, capital gains and dividend tax rates would return to 20% from 15%.
- Permanently patches the AMT.
- Extends unemployment benefits for one year for the long-term unemployed.
So although technically, we went over the fiscal cliff, it makes no difference to the economy whether the compromise was reached on December 31, or January 2, since legislation can be backdated to January 1.
Markets
Turbulence largely defined markets in 2012. Investors were battered this year by elections, concerns about a global slowdown, and fears around the fiscal cliff. However, despite some serious headwinds, equities put up respectable results, with the S&P gaining 13.41%, the Dow gaining 7.26%, and the Nasdaq gaining just under 16%. Between June 4 and October 5, the Dow increased 12.31% during a summer market surge that surprised analysts who dubbed it a ‘sugar high,’ not supported by fundamentals, but by expectations of additional quantitative easing by the Federal Reserve.
The gains in U.S. equities this year were lead by homebuilders and financials, who outperformed markets as a whole. Housing remained a bright spot in the broader economy as housing starts, new home sales, and tight housing supplies contributed to sector gains. Financial stocks were able to produce significant returns despite debt worries largely because of gains in the housing sector.
The 2012 Presidential race roiled markets as candidates outlined their plans to boost the economy. The Eurozone crisis provided another headwind for markets concerned that Europe’s slowdown would affect U.S. companies. Despite Europe’s struggles, Euro region equities returned more than 15% in 2012.
The Economy
To say that the economic recovery stalled in 2012 is somewhat accurate but doesn’t tell the whole story. While the economy sprinted out of the gate during the first quarter, the momentum faded in the Spring, leading many to worry that we were seeing 2011 all over again. However, as Summer led to Fall, we saw that the economy was indeed growing, but at a slow pace. Surprising many, the economy picked up during the third quarter, posting growth of 3.1%. A bright spot in an otherwise drowsy recovery has been manufacturing, which managed to hold its own between January and October, spurred by lower energy prices.
Earnings were generally disappointing in 2012 as U.S. businesses struggled with challenging market conditions. On the positive side, while revenue was down, profits were up, indicating that companies got better at doing more with less and are poised to grow once demand increases.
Unemployment started looking much better in 2012, dropping from 8.5% in January to 7.7% in November. As always, the larger unemployment number obscures a lot of detail, in that some of this decline can be attributed to discouraged jobseekers dropping their job search. However, overall, the trend is in the right direction, leaving us hopeful for 2013.
Although it’s too soon to know what final fourth quarter numbers will be, retail sales, a major driver of annual revenue for many companies, look soft. Holiday sales got off to a great start in November, but appear to have closed with a whimper. According to analytics firm Retail Metrics, December same-store sales may have grown just 1.9% over last year, well below their 2.5% estimates. These results may push down fourth quarter earnings for retailers.
The Federal Reserve
An activist Fed proved to prop up markets in 2012 by announcing multiple waves of ‘quantitative easing.’ These bond-buying programs were designed to lower interest rates and encourage lending by purchasing first Treasury bills and then mortgage-backed bonds. However, we’re not certain that Bernanke’s mojo will hold through 2013. Taking a look at past QE operations, the first QE program saw the S&P gain nearly 70%, while QE III in September 2012 has presided over a net S&P loss of nearly 4% as fiscal cliff concerns weighed on investors. The most controversial move took place on December 12, when the Fed announced QE IV, in which it promises to buy bonds until unemployment is less than 6.5%.
In Summary
Whatever challenges we face in the year ahead, rest assured that opportunities will exist for those who look in the right places. As a firm, we will continue mining for those opportunities and will work hard to match our clients with investments designed to reach their financial goals. And, as always, we will continue to educate you and keep you informed about anything with the potential to impact your financial future. We consider it a great privilege to support you in this capacity, and we will continue fighting to protect the lifestyle you’ve worked so hard to earn – in 2013, and beyond!
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Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!
If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.
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.
Diversification does not guarantee profit nor is it guaranteed to protect assets
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.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.
The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.
The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.
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.
Consult your financial professional before making any investment decision.
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.
By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.