Articles tagged with: bull market

Long-Term Investment Truths

Key lessons for retirement savers.

You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.

First & foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

You learn how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Should you misgauge your need for liquidity, you can end up selling at the wrong time as a consequence. It hurts to let go of an investment when the expected gain is high and the Price-to-Earnings ratio is low.

You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor has less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.

You learn to be patient. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

Mike Moffitt may be reached at phone# 641-782-5577 or email: rsmlbyer@mchsi.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and Asset Allocation do not protect against market risk.

Standard deviation is a historical measure of returns relative to the average annual return. A higher number indicates higher overall volatility.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

You Could Retire…But Should You?

It might be better to wait a bit longer.

Some people retire at first opportunity, only to wish they had waited longer. Thanks to Wall Street’s long bull run, many pre-retirees have seen their savings fully recover from the shock of the 2007-09 bear market to the point where they appear to have reached the “magic number.” You may be one of them – but just because you can retire does not necessarily mean that you should.

Retiring earlier may increase longevity risk. In shorthand, this is the chance of “outliving your money.” Bear markets, sudden medical expenses, savings shortfalls, and immoderate withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund.

Staying employed longer means fewer years of depending on your assets and greater monthly Social Security income. A retiree who claims Social Security benefits at age 70 will receive monthly payments 76% greater than a retiree who claims them at age 62.1

There are also insurance issues to consider. If you trade the office for the golf course at age 60 or 62, do you really want to pay for a few years of private health insurance? Can you easily find such a policy? Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2

How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least enough liquidity to quickly address such issues.

Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them?

Working a little longer might be good for your mind & body. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and co-workers. They find no ready equivalent once they end their careers.

Staying employed longer might also help baby boomers ward off some significant health risks. Worldwide, suicide rates are highest for those 70 and older according to the World Health Organization. Additionally, INSERM (France’s national health agency) tracked 429,000 retirees and pre-retirees for several years and concluded that those who left the workforce at age 60 were at 15% greater risk of developing dementia than those who stopped working at 65.3

It seems that the more affluent you are, the more likely you are to keep working. Last year, Bank of America’s Merrill Lynch and Age Wave surveyed wealthy retirees and found that 29% of respondents with more than $5 million in invested assets were still working. That held true for 33% of respondents with invested assets in the $1-5 million range. Most of these millionaires said they were working by choice, and about half were working in new careers.1

Ideally, you retire with adequate savings and a plan to stay physically and mentally active and socially engaged. Waiting a bit longer to retire might be good for your wealth and health.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/o8lf6z2 [8/1/14]

2 – money.usnews.com/money/blogs/on-retirement/2015/02/05/6-reasons-you-shouldnt-retire-early [2/5/15]

3 – newsweek.com/2015/03/20/retiring-too-early-can-kill-you-312092.html [3/20/15]

The Strong Dollar: Good or Bad?

What is dollar strength and who invests in it?

You may have heard that the dollar is “strong” right now. You may have also heard that a strong dollar amounts to a headwind against commodities and stocks.

While there is some truth to that, there is more to the story. A strong dollar does not necessarily rein in the bulls, and dollar strength can work for the economy and the markets.

The U.S. Dollar Index has soared lately. Across July 2014-February 2015, the USDX (which measures the value of the greenback against key foreign currencies) rose an eyebrow-raising 19.44%.1

On March 9, the European Central Bank initiated its quantitative easing program. The dollar hit a 12-year high against the euro a day later, with the USDX jumping north more than 3% in five trading days ending March 10. Remarkable, yes, but the USDX has the potential to climb even higher.2,3

Before this dollar bull market, we had a weak dollar for some time. A dollar bear market occurred from 2001-11, partly resulting from the monetary policy that the Federal Reserve adopted in the Alan Greenspan and Ben Bernanke years. As U.S. interest rates descended to historic lows in the late 2000s, the dollar became more attractive as a funding currency and demand for dollar-denominated debt increased.4

In Q1 2015, private sector dollar-denominated debt hit $9 trillion globally. Asian corporations have relied notably on foreign currency borrowing, though their domestic currency borrowing is also significant; Morgan Stanley recently researched 625 of these firms and found that dollar-denominated debt amounted to 28% of their total debt.4,5

So why has the dollar strengthened? The quick, easy explanation is twofold. One, the Fed is poised to tighten while other central banks have eased, promoting expectations of a mightier U.S. currency. Two, our economy is healthy versus those of many other nations. The greenback gained on every other major currency in 2014 – a development unseen since the 1980s.4

This explanation for dollar strength aside, attention must also be paid to two other critical factors emerging which could stoke the dollar bull market to even greater degree.

At some point, liabilities will increase for the issuers of all that dollar-denominated debt. That will ramp up demand for dollars, because they will want to hedge.

Will the dollar supply meet the demand? The account deficit has been slimming for the U.S., and the slimmer it gets, the fewer new dollars become available. It could take a few years to unwind $9 trillion of dollar-denominated debt, and when you factor in a probable rate hike from our central bank, things get really interesting. The dollar bull may be just getting started.

If the dollar keeps rallying, what happens to stocks & commodities? Earnings could be hurt, meaning bad news for Wall Street. A strong dollar can curb profits for multinational corporations and lower demand for U.S. exports, as it makes them more expensive. U.S. firms with the bulk of their business centered in America tend to cope better with a strong dollar than firms that are major exporters. Fixed-income investments invested in dollar-denominated assets (as is usually the case) may fare better in such an environment than those invested in other currencies. As dollar strength reduces the lure of gold, oil and other commodities mainly traded in dollars, they face a real headwind. So do the economies of countries that are big commodities producers, such as Brazil and South Africa.6

The economic upside is that U.S. households gain more purchasing power when the dollar strengthens, with prices of imported goods falling. Improved consumer spending could also give the Fed grounds to extend its accommodative monetary policy.6

How are people investing in the dollar? U.S. investors have dollar exposure now as an effect of being invested in the U.S. equities market. Those who want more exposure to the rally can turn to investment vehicles specifically oriented toward dollar investing. European investors are responding to the stronger greenback (and the strong probability of the Fed raising interest rates in the near future) by snapping up Treasuries and corporate bonds with longer maturities.

Stocks can still rally when the dollar is strong. As research from Charles Schwab indicates, the average annualized return for U.S. stocks when the dollar rises has been 12.8% since 1970. For bonds, it has been 8.5% in the years since 1976. A dollar rally amounts to a thumbs-up global vote for the U.S. economy, and that can certainly encourage and sustain a bull market.7

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is a potential for fast price swings in commodities and currencies that will result in significant volatility in an investor’s holdings.

Citations.

1 – wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [3/9/15]

2 – reuters.com/article/2015/03/10/us-markets-stocks-idUSKBN0M612A20150310 [3/10/15]

3 – forbes.com/sites/maggiemcgrath/2015/03/10/u-s-equities-hammered-on-dollar-strength-and-oil-weakness/ [3/10/15]

4 – valuewalk.com/2015/02/us-dollar-bull-market/ [2/4/15]

5 – tinyurl.com/ptpolga [2/25/15]

6 – blogs.wsj.com/briefly/2014/12/24/how-a-strong-dollar-affects-investors-at-a-glance/ [12/24/14]

7 – time.com/money/3541584/dollar-rally-global-currencies/ [2/13/15]

 

More Irrational Exuberance?

Has unchecked optimism inflated asset values?

“Irrational exuberance.” That phrase – uttered by Federal Reserve Chairman Alan Greenspan in 1996 and reputedly coined by economist Robert Shiller – has become part of the investment lexicon. Now and then, bears reference it – especially when the market turns red-hot.

Late last year, many Wall Street investment strategists thought the S&P 500 would advance about 5.8% in 2014. They were wrong. As 2014 ends, the broad benchmark is poised for another double-digit annual gain. Asked to explain the difference, bearish market analysts might point to irrational exuberance.1

Irrational exuberance – the run-up of asset values due to runaway enthusiasm about an asset class – reared its head catastrophically in 2000 (the tech bubble) and in 2007 (the housing bubble). In the first edition of his book of the very same title (2000), Shiller warned investors that stocks were overvalued. In the second edition of Irrational Exuberance (2005), he cautioned that real estate was overvalued. The fact that he’s trotting out a third edition of the book in 2015 was some people a little spooked. 2,3

Has quantitative easing (QE) bred irrational exuberance once again? As a 2011 Forbes.com headline put it, “Trees Don’t Grow to the Sky – Even with the Fed Behind Them.” You could argue – quite convincingly – that the Fed has propped up the stock market since 2008, and that the great gains of this bull market were primarily a result of QE1, QE2 and QE3.4

No further easing, no further gains, the logic goes (or least not gains resembling those seen in recent years).

As 2014 ends, bears insist that stocks are greatly overvalued. To back up their argument, they point to recent movements in the CAPE (Cyclically Adjusted Price-to-Earnings) or P/E 10 ratio. This closely-watched stock market barometer (created by Shiller and his fellow economist John Campbell) tracks a 10-year average of the S&P Composite’s real (inflation-adjusted) earnings.5,7

(If you’re wondering what the S&P Composite is, it is a historically wide, big-picture window on the U.S. equities market that unites data from the S&P 500 – which has only existed since 1957 – with prior S&P indices.)6

Since 1881, the P/E 10 ratio of the S&P Composite has averaged about 16.5. At the peak of the dot-com bubble in 2000, it hit 44.2. It stumbled to a low of 13.3 when the market bottomed out in March 2009, but it was up at 26.5 as December began, about 60% above its historic mean.5

Why should this concern you? This P/E 10 ratio has only topped the 25 level three times – in 1929, 1999 and 2007.7

But isn’t the market healthy & ready to stand on its own? That’s what the bulls insist, and given the S&P 500’s 2.45% rise for November following the end of QE3, they may be right. Ardent bulls contend that another secular bull market began in March 2009 – history just hasn’t confirmed its secularity yet.8

In fact, Shiller himself recently noted that even though the high P/E 10 ratio is troubling, it has been mostly above 20 since 1994. (Low bond yields may explain some of that.) A numeric gap from 26 to 20 is decidedly less alarming than one from 26 to 16.7

Whatever occurs, remember that stocks don’t always go up. (Home prices don’t always ascend either.) The longer a bull market progresses, the more challenges it overcomes, the greater the chance that this particular reality of equity investing may be lost.* While diversification does not protect against marketing risk or guarantee enhanced overall returns, it may pay to diversify your portfolio across asset classes for this very reason, now and in the future.

Mike Moffitt may be reached at ph# 641-464-2248 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 *Stock investing involves risk including loss of principal.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – blogs.wsj.com/moneybeat/2014/11/23/a-sign-of-health-for-stocks-cautious-2015-forecasts/ [11/23/14]

2 – money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/ [1/13/05]

3 – irrationalexuberance.com/main.html?src=%2F [12/8/14]

4 – forbes.com/sites/etfchannel/2011/01/20/trees-dont-grow-to-the-sky-even-with-fed-behind-them/print/ [1/20/11]

5 – advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php [12/1/14]

6 – advisorperspectives.com/dshort/updates/Validating-the-SP-Composite.php [12/8/14]

7 – tinyurl.com/pwungau [8/18/14]

8 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/14]

 

 

 

 

Pullback Perspective

This latest stock market pullback has provided an unwelcome reminder that stocks do not always go up in a straight line. Even within powerful bull markets such as this one, pullbacks of 5 – 10% have been quite common and do not mean the bull market is nearing an end. In this week’s commentary, we attempt to put the pullback into perspective. We look beyond this latest bout of volatility and share our thoughts on the current bull market, compare it with prior bull markets at this stage, and discuss why we do not think it’s coming to an end.

Pullbacks Don’t Mean the End of the Bull Market

Pullbacks such as this one, which has reached 5%, have been normal. Sometimes stocks get ahead of themselves. When they do, investor concerns can be magnified and profit taking might take stocks down more than might be justified by the fundamental news. We see this latest pullback as normal within the context of an ongoing and powerful bull market and do not see its causes (European and Chinese growth concerns, the rise of Islamic State militants, Ebola, the Russia-Ukraine conflict, etc.) as justifying something much bigger.

The S&P 500 has now experienced 19 pullbacks during this 5.5-year-old bull market, during which the index has risen by 182% (cumulative return of 217% including dividends). The 1990s bull market included 13 pullbacks; there were 12 during the 2002 – 2007 bull market. At an average of three to four pullbacks per year, we are in-line with history. We understand the nervousness out there, but what we have just experienced looks pretty normal at this point.

When volatility has been so low for so long, normal volatility does not feel normal. Investors have become unaccustomed to what we would characterize as normal volatility. While most of the 5% drop came in a short period of time last week (October 6 –10), the level of volatility experienced last week is not at all uncommon within an ongoing economic expansion and bull market. Volatility tends to pick up as the business cycle passes its midpoint, which we believe it has. Reaching this stage just took longer than many had expected during the current cycle.

Also, keep in mind that the 335 drop in the Dow Jones Industrials that we experienced on Thursday, October 9, 2014, is not as dramatic as it once was. That loss was less than 2%, with the Dow near 17,000 when it occurred, compared with 3 – 4% losses associated with that number of points on the Dow earlier in the recovery.

These pullbacks do not mean the end of the bull market is near, nor does the fact that we have not had a 10% or more correction since 2011. In fact, most bull markets since World War II included only one correction of 10% or more, and the current bull has already had two (2010 and 2011). We do not believe the current economic and financial market backdrop has sufficiently deteriorated for the pullback to turn into a bear market, as we discuss below.

Why This Pullback Is Unlikely to Get Much Worse

So why do we think this pullback is unlikely to turn into a bear market? There are number of reasons:

• The economic backdrop in the United States remains healthy. Gross domestic product (GDP) is growing at above its long-term average, providing support for continued earnings growth; the U.S. labor market has created 2 million jobs over the past year; and the drop in oil prices may support stronger consumer spending.
• Our favorite leading indicators, including the Conference Board’s Leading Economic Index (LEI), the Institute for Supply Management (ISM) Index, and the yield curve, suggest that the bull market may likely continue into 2015 and beyond, with a recession unlikely on the immediate horizon.
• The European Central Bank (ECB) is likely to add a dose of monetary stimulus to spark growth in Europe, the source of much of the global growth fears that have driven recent stock market weakness. China stands ready to invigorate its economy as well.
• Interest rates, and therefore borrowing costs for corporations, remain low. The Federal Reserve (Fed) is in no hurry to raise interest rates.
• Valuations have become more attractive. Price-to-earnings ratios (PE) have not reached levels that suggest the end of the bull market is forthcoming, based on history. We view PEs, which have fallen about 0.5 points from their recent peak, as reasonable given growing earnings and low interest rates.
• The S&P 500 is marginally above its 200-day moving average at 1905. Historically, this level has proven to be strong support. Although the index may dip slightly below this level in the near term, we expect the range around that level (1900 – 1910) to provide strong support for the index again and would not expect it to stay below that range for very long.

Bull Markets Don’t Die of Old Age

The current bull market is one of the most powerful ever at this stage, just over 5.5 years in. Since March 9, 2009, when the current bull market began, the S&P 500 has risen 182% (total cumulative return of 217%), topping all other bull markets since World War II at this stage. The 1949 and 1982 bull markets were close, with gains of 170% and 163% (respectively) at this stage, but were not quite as strong.

So does that mean that this bull market is too old and should end? We don’t think so. Bull markets die of excesses, not old age, and we do not see the excesses that characterize an impending bear market. The labor markets are not strong enough yet to generate significant upward pressure on wages to drive inflation. U.S. factories have excess capacity. As a result, the Fed is unlikely to start hiking interest rates until the middle of 2015, and rate hikes are likely to be gradual. It will likely take numerous hikes to slow the U.S. economy enough to tip it into recession (and invert the yield curve), which is unlikely to come until at least 2016. We do not see stock valuations or broad investor sentiment as excessive. We expect this bull market to complete its sixth year in March 2015 and believe there is a strong likelihood that it continues well beyond that date.

Conclusion
We do not believe the volatility seen in recent weeks, which is in-line with historical trends, is an early signal of a recession or bear market. Nor do we think the age of this bull market means it should end, given the favorable economic backdrop, central bank support, and reasonable valuations. Although we will continue to watch our favorite leading indicators for warning signs of something bigger, we think this latest bout of volatility is nothing more than a normal, though unwelcome, interruption within a long-term bull market. We maintain our positive outlook for stocks for the remainder of 2014 and into 2015.

Mike Moffit may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com
Website: cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing involves risk including loss of principal. Price-to-earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings.
INDEX DESCRIPTIONS
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure
performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

After QE3 Ends

Can stocks keep their momentum once the Federal Reserve quits easing?

“Easing without end” will finally end.
According to its June policy meeting minutes, the Federal Reserve plans to wrap up QE3 (Quantitative Easing) this fall. Barring economic turbulence, the central bank’s ongoing stimulus effort will conclude on schedule, with a last $15 billion cut to zero being authorized at the October 28-29 Federal Open Market Committee meeting.1,2

So when might the Fed start tightening? As the Fed has pledged to keep short-term interest rates near zero for a “considerable time” after QE3 ends, it might be well into 2015 before that occurs.1

In June, 12 of 16 Federal Reserve policymakers thought the benchmark interest rate would be at 1.5% or lower by the end of 2015, and a majority of FOMC members saw it at 2.5% or less at the end of 2016.3

It may not climb that much in the near term. Reuters recently indicated that most economists felt the central bank would raise the key interest rate to 0.50% during the second half of 2015. In late June, 78% of traders surveyed by Bloomberg News saw the first rate hike in several years coming by September of next year.4,5

Are the markets ready to stand on their own? Quantitative easing has powered this bull market, and stocks haven’t been the sole beneficiary. Today, almost all asset classes are trading at prices that are historically high relative to fundamentals.

Some research from Capital Economics is worth mentioning: since 1970, stocks have gained an average of more than 11% in 21-month windows in which the Fed greenlighted successive rate hikes. Bears could argue that “this time is different” and that stocks can’t possibly push higher in the absence of easing – but then again, this bull market has shattered many expectations.6

What if we get a “new neutral”? In 2009, legendary bond manager Bill Gross forecast a “new normal” for the economy: a long limp back from the Great Recession marked by years of slow growth. While Gross has been staggeringly wrong about some major market calls of late, his take on the post-recession economy wasn’t too far off. From 2010-13, annualized U.S. Gross Domestic Product (GDP) averaged 2.3%, pretty poor versus the 3.7% it averaged from the 1950s through the 1990s.3

Gross now sees a “new neutral” coming: short-term interest rates of 2% or less through 2020. Some other prominent economists and Wall Street professionals hold roughly the same view, and are reminding the public that the current interest rate environment is closer to historical norms than many perceive. As Prudential investment strategist Robert Tipp told the Los Angeles Times recently, “People who are looking for higher inflation and higher interest rates are fighting the last war.” Lawrence Summers, the former White House economic advisor, believes that the U.S. economy could even fall prey to “secular stagnation” and become a replica of Japan’s economy in the 1990s.3

If short-term rates do reach 2.5% by the end of 2016 as some Fed officials think, that would hardly approach where they were prior to the recession. In September 2007, the benchmark interest rate was at 5.25%.3

What will the Fed do with all that housing debt? The central bank now holds more than $1.6 trillion worth of mortgage-linked securities. In 2011, Ben Bernanke announced a strategy to simply let them mature so that the Fed’s bond portfolio could be slowly reduced, with some of the mortgage-linked securities also being sold. Two years later, the strategy was modified as a majority of Fed policymakers grew reluctant to sell those securities. In May, New York Fed president William Dudley called for continued reinvestment of the maturing debt even if interest rates rise.7

Bloomberg News recently polled more than 50 economists on this topic: 49% thought the Fed would stop reinvesting debt in 2015, 28% said 2016, and 25% saw the reinvestment going on for several years. As for the Treasuries the Fed has bought, 69% of the economists surveyed thought they would never be sold; 24% believed the Fed might start selling them in 2016.7

Monetary policy must normalize at some point. The jobless rate was at 6.1% in June, 0.3% away from estimates of full employment. The Consumer Price Index shows annualized inflation at 2.1% in its latest reading. These numbers are roughly in line with the Fed’s targets and signal an economy ready to stand on its own. Hopefully, the stock market will be able to continue its advance even as things tighten.6

Mike Moffit may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com
website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – marketwatch.com/story/fed-plans-to-end-bond-purchases-in-october-2014-07-09 [7/9/14]
2 – telegraph.co.uk/finance/economics/10957878/US-Federal-Reserve-on-course-to-end-QE3-in-October.html [7/9/14]
3 – latimes.com/business/la-fi-interest-rates-20140706-story.html#page=1 [7/6/14]
4 – reuters.com/article/2014/06/17/us-economy-poll-usa-idUSKBN0ES1RD20140617 [6/17/14]
5 – bloomberg.com/news/2014-07-07/treasuries-fall-after-goldman-sachs-brings-forward-fed-forecast.html [7/7/14]
6 – cbsnews.com/news/will-the-fed-rate-hikes-rattle-the-market/ [7/10/14]
7 – bloomberg.com/news/2014-06-17/fed-will-raise-rates-faster-than-investors-expect-survey-shows.html [6/17/14]

China, Ukraine & the Markets

Dow drops again, analysts wonder. March 13 saw another triple-digit descent for the blue chips – the Dow Jones Industrial Average plummeted more than 230 points, the second market day in less than two weeks to witness a loss of 150 points or greater. The S&P 500’s (small) YTD gain was also wiped out by the selloff. As the bull market enters its sixth year, it faces some sudden and potentially stiff headwinds, hopefully short-term.1,2

In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation’s future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3

Ukraine’s government calls the referendum unconstitutional. The United States and key European Union (EU) members agree and claim it violates international law. Russia welcomes the vote – 60% of the Crimean Peninsula’s population is made up of ethnic Russians, and Russian troops more or less control the region now.3

Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect “a very serious series of steps Monday in Europe and [the United States],” according to Secretary of State John Kerry.3

So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia’s entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine. Additional “serious” steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations. Russia could respond in kind, of course, with similar asset freezes and possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4

Investors see China’s growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China’s industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market – copper fell 1.3% on March 13, its third down day on the week.

Besides being the world’s top copper user, China also employs the base metal as collateral for bank loans.1,5,6

As Chinese Premier Li Keqiang noted on March 13, the nation’s 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China’s growth is more like 4%. The upside, Faber commented, is that “4 percent growth in a world that has no growth is actually very good.”6

Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E (price-to-earnings) ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg’s latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1

Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC.  Investment advice offered through Advantage Investment Management, a registered investment advisor and a separate entity from LPL Financial.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.

The Dow Jones Industrial Average (the ‘Dow’) is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.

International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 – ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 – cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 – uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 – cnbc.com/id/101492226 [3/13/14]
6 – cnbc.com/id/101489500 [3/13/14]

Is your portfolio ready for 2014?

Since we’re nearly 5 years removed from the bottom that the S&P 500 index set on March 9, 2009, it’s probably a good time to reexamine where we are and whether or not we’re looking at a possible correction again. Of course, everyone has their own opinion on this and at this point it IS just OPINIONS. But facts (or lack of facts) usually back up a person’s opinions, so let’s try looking at some of the facts and see how those opinions are formed.
First, let’s look at the positives. The economy looks to be growing, albeit slowly. Total retail sales in the USA in calendar year 2013 were $5.085 trillion, up +4.2% from its total in 2012, according to Michael A. Higley’s “By the Numbers” 2/24/14 newsletter. The early February Federal Reserve meeting, the Fed committed to continuing the reduction in bond purchases, with an additional $10 billion reduction in quantitative easing bond purchases. That could indicate the Federal Reserve believes the economy is getting stronger. Their language about conditions and business/consumer spending was generally more optimistic.
The STOXX Europe 600 Index posted a third straight week of gains and climbed to its highest level in six years. News about the Eurozone economic recovery has turned increasingly positive. And with earnings season nearly over, S&P Dow Jones Indices says it’s likely that fourth-quarter 2013 earnings for S&P 500 companies will break a record, as they did in each of the preceding three quarters of 2013. This is a little deceiving, however, as I’ll explain shortly.
John Hancock’s most recent Viewpoints newsletter trumpets “Bias towards higher equity prices remain.” Mark Donovan, CFA, says that “at around 1,800, the S&P 500 Index trades at about 16.5 times estimated 2013 earnings,” and as such, “the equity markets look neither cheap nor overvalued.”

So is there anything to worry about?
Some others see some negative factors. LSA Portfolio Analytics sends us their weekly investment committee minutes. They noted many economic indicators came in weaker than expected in February: Empire manufacturing survey, the Philadelphia Fed manufacturing index, the NAHB housing market index. Housing starts for January fell -16.0% and building permits also lost ground, falling -5.4% compared to an expected decline of -1.6%.

Noted economist Harry Dent, who studies the world’s demographic trends as a predictor of future economic trends, thinks we are in a bubble that will burst soon. He cites the fact that margin debt – borrowing money to buy investments, is approaching the high of 2007. Stock buybacks are reaching very high levels as well, as 83% of the S&P 500 companies are buying back their shares compared to 87% in 2007. Stock buybacks artificially inflate earnings per share and can give the illusion that a company’s earnings are growing when they may not be; if a company for instance has $10 of earnings and 10 shares outstanding, that’s $1 of earnings/share. If they buy back 4 shares, now there’s only 6 shares outstanding, so the earnings per share goes up from $1/share to $1.67/share ($10 of earnings/6 shares) even though the earnings themselves did not change.

As for the market itself, since 2000 each successive major correction has only gotten greater. The 2000-2002 crash was nearly a 50% drop in the S&P 500, the 2007-2009 drop was over 55%. If the market drops to that same general level of support as in 2002 and 2009, the drop will be over 63%. Although there are a few exceptions, most bull markets don’t last much longer than 5 years!

While we are not predicting such a drop, we also would not rule it out. Given that anything is possible, we have been suggesting it would be worthwhile to stress test your portfolio against potential negative outcomes.

The Federal Reserve, Wall Street banks and other major hedge funds use stress testing to project their losses in the event of the unexpected. Stress testing is a routine part of our process.
We start by asking questions like, “Historically, what happened to this group of investments when the dollar crashes, the economy falls into recession/depression, or oil prices skyrocket?” We model over 60 scenarios – both positive and negative.
Our model measures the potential impact of these scenarios on investments using history as a guide, providing insight into the historical characteristics of portfolios.
The software then uses this data to project how your investments might react to future scenarios, both positive and negative. When running a stress test, each investment in your portfolio can be tested against 60+ scenarios in this manner, with the results combined and summarized for easy understanding.
You can see how the stress test works by going to www.cfgiowa.com and click on the “Take Your Free Stress Test” button on the home page.
Investing involves risk including loss of principal.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

CFGIowa Weekly Economic Update December 2, 2013

CONFIDENCE INDEX FALLS, SENTIMENT INDEX RISES

Two respected barometers of consumer mood went different ways in November. The Conference Board’s consumer confidence index came in at a disappointing 70.4, down from a revised 72.4 mark for October and well below the 74.0 reading forecast by Briefing.com. November’s final consumer sentiment index from the University of Michigan rose to 75.1, topping the Briefing.com projection by 1.6 points.1

HOUSING INDICATORS LARGELY IMPRESS

September’s edition of the S&P/Case-Shiller Home Price Index found house prices rising 3.2% for the third quarter, 13.3% YTD and 11.2% across the past 12 months. Building permits rose 6.2% in October, with the Census Bureau measuring a 13.9% annual gain. Pending home sales declined for another month: they fell 0.6% for October, the National Association of Realtors noted.1,2

DURABLE GOODS ORDERS DECLINE

Overall hard goods orders slipped 2.0% in October, partly reversing the 4.1% increase in September. The silver lining? The Census Bureau found that October’s retreat was just 0.1% with transportation orders removed.1

NOVEMBER ENDS WITH FURTHER STOCK GAINS

The NASDAQ was the frontrunner among the big three U.S. indices last week, rising 1.71% to 4,059.89. Both the S&P 500 (+0.06% to 1,805.81) and Dow (+0.13% to 16,086.41) realized tiny gains during the abbreviated trading week. Turning to the NYMEX, oil and gold both had poor Novembers: on the month, gold slid 5.46% to $1,250.60 an ounce and light crude dropped 3.60% to $92.72 a barrel.3,4,5,6

THIS WEEK: Monday, ISM releases its November manufacturing PMI and the Census Bureau provides September and October construction spending data. Tuesday, the Commerce Department releases figures on November auto sales. On Wednesday, ISM puts out its November service sector PMI, the Federal Reserve offers a new Beige Book, the Census Bureau issues long-awaited September and October new home sales figures, and ADP produces its November job change report. The federal government releases its second estimate of Q3 GDP Thursday; also on tap for that day are the November Challenger job cuts report, data on October factory orders, and the latest initial jobless claims numbers. Friday, the Labor Department issues the November employment report, the Commerce Department publishes data on October consumer spending, and December’s preliminary University of Michigan consumer sentiment index arrives.

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+22.76

+23.53

+16.44

+6.44

NASDAQ

+34.46

+34.79

+32.88

+10.71

S&P 500

+26.62

+27.53

+20.30

+7.06

REAL YIELD

11/29 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.60%

-0.78%

2.60%

2.03%

Sources: CNNMoney.com, bigcharts.com, treasury.gov – 11/29/133,4,5,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.


Please feel free to forward this article to family, friends or colleagues.  If you would like us to add them to our distribution list, please send us their address (click the link). We will contact them first and request their permission to add them to our list.


«RepresentativeDisclosure»

The consumer confidence index is a survey by the Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future.

The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The MCSI uses telephone surveys to gather information on consumer expectations regarding the overall economy.

The S&P / Case-Shiller U.S. National Home Price Index measures the change in the value of U.S. residential housing market. The S&P / Chase-Shiller  U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm’s-length transactions. The index is named for its creators, Karl Case and Robert Shiller.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results.

Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – briefing.com/investor/calendars/economic/2013/11/25-29 [11/27/13]
2 – dailyfinance.com/2013/11/26/case-shillers-housing-index-and-octobers-housing-s/ [11/26/13]
3 – money.cnn.com/data/markets/dow/ [11/29/13]
4 – money.cnn.com/data/markets/nasdaq/ [11/29/13]
5 – money.cnn.com/data/markets/sandp/ [11/29/13]
6 – money.cnn.com/data/commodities/ [11/29/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F28%2F08&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F28%2F08&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F28%2F08&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [11/29/13]
9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/28/13]

CFGIowa Monthly Economic Update October 2013

THE MONTH IN BRIEF

A rampaging bull market overcame two significant challenges in October – a 16-day closure of most of the federal government, and the threat of a U.S. debt default. Congress broke the stalemate with a short-term rescue – a deal which guaranteed government funding until January 15 and extended the nation’s borrowing authority until February 7. Investors were relieved, and the S&P 500 added 4.46% to its YTD gain during the month. As expected, the Federal Reserve did not scale back its stimulus. As assorted commodities alternately rose and fell, global stock benchmarks mostly rose. Social Security recipients got a mild increase in payments for 2014, and uninsured individuals who visited healthcare.gov mostly got frustrated. Signs of the housing market cooling down a bit emerged, but there was still good news from the sector.1,2

DOMESTIC ECONOMIC HEALTH

Standard & Poor’s estimates that the October shutdown took 0.6% off Q4 Gross Domestic Product (GDP) and cost the U.S. economy $24 billion. It certainly dented consumer confidence: the October Conference Board index showed a one-month drop of 9.0 points to 71.2, and the month’s final University of Michigan consumer sentiment index came in at 73.2, the lowest reading since last November.3,4,5

The impasse in Washington delayed or postponed some regularly scheduled economic reports. We did learn that the jobless rate had ticked down to 7.2% in September, even with only 148,000 new jobs created (economists surveyed by Dow Jones Newswires had forecast a gain of 180,000). Consumer inflation rose 0.2% in September after ticking up 0.1% in August, while wholesale inflation decreased 0.1% in September after a 0.3% August advance. Retail sales retreated 0.1% in September, but were up 0.4% with auto buying factored out. Industrial output increased 0.6% in September, and durable goods orders rose 3.7%.4,5,6

Many uninsured consumers faced an impasse as they tried to use healthcare.gov, the federal government’s new website created to help people shop for health coverage in 36 states. The site was plagued by back-end design and security issues, leading some of its critics to call for the immediate resignation of Health & Human Services Secretary Kathleen Sebelius. Additionally, some insured Americans discovered they would have to buy new coverage in 2014 due to the inability of their current health insurance to meet the standards of the Affordable Care Act.7,8

In more positive news, the Institute for Supply Management’s manufacturing index rose to 56.4 in October, marking the fifth straight month of expansion. The last ISM report on the service sector (September) also showed expansion at 54.4, although this was a real drop from August’s reading of 58.6.9,10

As expected, the Federal Reserve refrained from tapering its $85-billion-per-month asset purchase program. Noting that “fiscal policy is restraining economic growth,” the Federal Open Market Committee’s October 30 statement also conceded that “the recovery in the housing sector slowed somewhat in recent months.” Social Security announced a 1.5% Cost of Living Adjustment (COLA) for 2014, one of the program’s smallest COLAs ever; that works out to an additional $19 a month for the average recipient.11,12

GLOBAL ECONOMIC HEALTH

Demand for exports seemed to be driving manufacturing growth in Asia. China’s official purchasing managers index (PMI) hit 51.4 in October, an 18-month high.  The HSBC/Markit PMI for China also rose to 50.9 in October. Good news, yet a Bloomberg poll of 52 economists projected China’s 2013 GDP at 7.6%, the poorest since 1999. Markit’s factory-sector PMI for Japan climbed 1.7 points in October to 54.2 and Taiwan’s rose to 53.0. October’s Markit manufacturing PMI for India showed sector contraction – it was at 49.6 for a second straight month.13,14

Great Britain’s Markit PMI slipped 0.3 points to a still-impressive 56.0 in October. The combined Markit PMI for the eurozone slipped from 52.2 in September to 51.5 last month, but that reading still marked the fourth consecutive time it was above 50. Eurozone unemployment was at 12.0%, but Markit noted 15 eurozone members reporting “modest growth of activity for the third month running, representing the first period of growth for these countries since early 2011.” Spain had actually emerged from its 2-year recession in Q3, and its jobless rate fell in Q3 as well.13,15  

WORLD MARKETS

Many benchmarks rose. Across the pond, the DAX gained 5.11% in October, the STOXX 600 3.84%, the CAC 40 3.78% and the FTSE 100 4.17%. Up north, the TSX Composite climbed 4.49%; to our south, the IPC All-Share gained 2.12%. While the Nikkei 225 and Shanghai Composite respectively lost 0.88% and 1.52% for the month, advances were more common in Asia: the Hang Seng added 1.52%, the Jakarta Composite 4.51%, the KOSPI 1.66% and the Sensex 9.21%. Looking at multinational/regional benchmarks, the MSCI World Index was up 3.83% for the month while the MSCI Emerging Markets Index gained 4.76%; the Asia Dow advanced 3.01%, the Europe Dow 4.24% and the Global Dow 4.38%.2,16i COmposite : the TSX Composite (-2.30%), the  gan’

COMMODITIES MARKETS

Performances were all over the place. While copper lost 0.63% and gold 0.34%, silver futures advanced 1.59% and platinum futures 2.98%. NYMEX crude fell 5.91% on the month and unleaded gasoline retreated 0.51%, but natural gas rose 0.39%. Among the major crop futures, sugar (+4.12%) and cocoa (+1.29%) were the gainers. Soybeans lost only 0.04%, but deeper October losses were in store for wheat (1.69%), corn (3.00%), coffee (7.59%) and cotton (11.50%). The U.S. Dollar Index lost 0.02 points on the month to wrap up October at 80.20.17,18

REAL ESTATE

Existing home sales fell 1.9% in September, but the National Association of Realtors said that the median home price was $199,200 – up 11.7% in the past 12 months, which marked the tenth consecutive month of double-digit annual price increases. August’s overall S&P/Case-Shiller Home Price Index mirrored this trend – it had prices up 12.8% year-over-year, improved from 12.3% in the July edition. NAR noted a 5.6% dip in pending home sales for September. October ended without September new home sales or new residential construction reports from the Census Bureau.4,19

Mortgage rates fell, with one exception. Comparing Freddie Mac’s October 31 and September 26 Primary Mortgage Market Surveys, we see the following decreases: 30-year FRMs, 4.32% to 4.10%; 15-year FRMs, 3.37% to 3.20%; 5/1-year ARMs, 3.07% to 2.96%. Interest rates on 1-year ARMs rose 0.01% in October to 2.64%.20

LOOKING BACK…LOOKING FORWARD

The S&P 500 closed at 1,756.54 on Halloween, while the Dow settled at 15,545.75 and the NASDAQ at 3,919.71. Small caps pushed higher as well: the Russell 2000 gained 2.45% last month, ending October at 1,100.15.2

 

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+18.63

+2.75

+18.70

+5.86

NASDAQ

+29.81

+3.93

+31.66

+10.29

S&P 500

+23.16

+4.46

+24.39

+6.72

REAL YIELD

10/31 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.40%

-0.78%

3.14%

1.93%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 10/31/132,21,22

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

Now we come into what is traditionally a sweet spot for the stock market – the fall. As the federal shutdown altered some of the data collection and research processes that normally go into the economic reports out of Washington, the market may take the upcoming editions of those reports with a few grains of salt. Private-sector reports may carry more weight this month and next. There is a sense of normalcy, as the market has again been concentrating on earnings – and normalcy is good for a mature bull market. The next big test for stocks will come in mid-December – will the new congressional supercommittee meet its deadline to craft a multi-year deficit reduction plan for the federal budget? If it doesn’t, we may have a replay of the October impasse on Capitol Hill – and a sense of déjà vu on Wall Street.

UPCOMING ECONOMIC RELEASES: As you will notice, the data stream is a bit off-kilter for November. Just ahead, we have August and September factory orders (11/4), the October ISM service sector PMI (11/5), September’s Conference Board leading indicators (11/6), the October Challenger job-cut report and the federal government’s delayed first estimate of Q3 GDP (11/7), the Labor Department’s October jobs report, the University of Michigan’s initial November consumer sentiment index and Commerce Department figures on September consumer spending (11/8), September wholesale inventories and October industrial production (11/15), the November NAHB housing market index (11/18), September business inventories, October’s CPI, retail sales and existing home sales and the October 30 FOMC minutes (11/20), the October PPI (11/21), October pending home sales, September and October housing starts and building permits, the September Case-Shiller and FHFA housing price indices, the second estimate of Q3 GDP and the Conference Board’s November consumer confidence survey (11/26), October consumer spending and durable goods orders and the final November University of Michigan consumer sentiment index (11/27). Thanksgiving falls on November 28, and due to the long weekend accompanying the holiday, there will be no further major economic releases until December. When will the Census Bureau put out some new home sales data? A combined September/October report is scheduled to appear December 4.


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«RepresentativeDisclosure»

Fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

The Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The MCSI uses telephone surveys to gather information on consumer expectations regarding the overall economy.

The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The S&P / Case-Shiller U.S. National Home Price Index measures the change in the value of U.S. residential housing market. The S&P / Chase-Shiller  U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm’s-length transactions. The index is named for its creators, Karl Case and Robert Shiller.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange.

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).

KOSPI is the major stock market index of South Korea. The index represents all common stocks traded on the Korea Exchange.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region.

The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

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