Wiley Group - Retirement Portfolios and Retirement Advice

At its most basic level, a trade takes place when a buyer is willing to buy at a certain price and a seller is willing to sell at that price. Both parties could be smart, experienced, and looking at the same data, yet somehow one party thinks it’s a good price to buy and the other thinks it’s a good price to sell.

Last week, several news items represented good examples of how investors could look at the same data and draw different conclusions.

We’re only three weeks into the New Year and already some very interesting trends have developed in the markets. Consider these four:

The worst performing stocks in 2011 have been the best performing in 2012. Bespoke Investment Group did an analysis and discovered that the 50 worst performing stocks in the S&P 500 in 2011 were up a whopping 11.2 percent YTD 2012 as of last Wednesday. By contrast, the 50 best performing stocks in 2011 were up only 2.1 percent so far in 2012. What a difference a “turn of the calendar” makes!

U.S. Treasury securities are off to their worst start in nine years. With improvements in the employment situation, housing sales hitting an 11-month high and a reprieve in the European debt problem, investors have less need for conservative treasuries and a bigger appetite for riskier stocks, according to Bloomberg and CNBC. At the moment, investors seem to be saying, “risk on.”

The U.S. became a member last August and, now, so has most of the eurozone. Unfortunately, it’s not a club you want to join.

Late last week, Standard and Poor’s (S&P) announced it was downgrading the credit rating of nine of the eurozone’s 16 members including behemoths France and Spain. In addition, 14 of the 16 members have “negative outlooks” which means S&P believes, “that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013.” The only two countries with stable credit outlooks are Germany (no surprise) and Slovakia, a former Communist country that became an independent state in 1993 after the dissolution of Czechoslovakia.

Which stock characteristic most impacted the S&P 500’s performance in 2011?

To answer that question, Bespoke Investment Group performed a decile analysis and concluded that having a high dividend yield was the most important factor affecting stock prices in 2011.

In their analysis, they discovered that the three deciles with the highest dividend yield were the only ones to experience a positive return for the year. In fact, while the S&P 500 index was unchanged for the year, the top three highest-yielding deciles rose 10.4 percent, 6.4 percent, and 8.7 percent, respectively. The remaining seven deciles all experienced a loss for the year.

If it feels like the stock market has been volatile this year, you’re right. Here are a few examples:

Three-month historic volatility for the “fear” gauge known as the VIX hit a record on October 31, surpassing the prior peak from December 2008.

Intraday swings in the Dow Jones Industrial Average have averaged 261 points since August 1, an exceptionally large number.

On four consecutive days back in August, the Dow Jones Industrial Average alternated between gains and losses of more than 400 points, the longest streak ever.

Politicians may struggle to work together, but at least the world’s central bankers can.

At 8:00 a.m. EST on November 30, the Federal Reserve released a statement that sent worldwide financial markets skyrocketing. Here’s the first paragraph of the statement:

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.