THE MARKETS
An extremely weak real estate market helped lead us into this
financial crisis. Could a strong real estate market help lead us
out? Possibly.
Existing home sales rose a stunning 7.2% in July and July marked
the first time in five years that existing home sales rose for four
consecutive months, according to the National Association of
Realtors. An influx of first-time homebuyers taking advantage of
the government's housing tax credit coupled with improved housing
affordability - due to lower home prices - helped drive demand.
While the top line sales number looked good, there were some
chinks under the armor. Approximately 31% of the sales in July were
considered "distressed" sales. And, in what could be a sign of more
trouble down the road, MarketWatch reported that the Mortgage
Bankers Association released a survey showing the percentage of
residential mortgages either in foreclosure or with at least one
payment past due rose to 13.16% in the second quarter - a record
high percentage.
Despite the mixed real estate news, the market viewed it as
positive and a strong rally last Friday sent the S&P 500 index
to a new 2009 high. If the real estate market continues to improve
and home prices start to rise, that could help support an even
healthier stock market down the road.
|
Data as of
8/21/09
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
2.2%
|
13.6%
|
-20.6%
|
-7.5%
|
-1.3%
|
-2.8%
|
|
DJ Global ex US (Foreign Stocks)
|
0.5
|
27.3
|
-15.8
|
-5.6
|
5.0
|
1.3
|
|
10-year Treasury Note (Yield Only)
|
3.6
|
N/A
|
3.8
|
4.8
|
4.3
|
5.9
|
|
Gold (per ounce)
|
-0.1
|
9.5
|
14.3
|
15.1
|
18.3
|
14.0
|
|
DJ-UBS Commodity Index
|
0.1
|
8.8
|
-35.7
|
-9.4
|
-2.9
|
3.8
|
|
DJ Equity All REIT TR Index
|
1.3
|
9.1
|
-30.4
|
-13.1
|
0.6
|
8.5
|
Notes: S&P 500, DJ Global ex US,
Gold, DJ-UBS Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year
returns are annualized; the DJ Equity All REIT TR Index does
include reinvested dividends and the three-, five-, and 10-year
returns are annualized; and the 10-year Treasury Note is simply the
yield at the close of the day on each of the historical time
periods. Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association. Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested
into directly. N/A means not available.
HERE'S A TRIVIA QUESTION FOR YOU: How many bull
markets has the United States experienced since 1927? We define a
bull market as a rally of at least 20% that was preceded by a
decline of at least 20%.
The answer is 26, according to Bespoke Investment Group.
Interestingly, 10 of those bull markets occurred during the decade
of the 1930s. Overall, the stock market was horrible during the
1930s as the S&P 500 index had a total return of 0.0% for that
depressing 10-year stretch, according to Vanguard. Doesn't it seem
a bit odd that a decade could have 10 bull markets yet still end
the period with absolutely zero return?
The reason for this oddity is that some of the best bull markets
happen within the context of a long secular bear market. These
"snapback" rallies may be powerful and alluring. They may lull
unsuspecting investors into thinking that all is well. But, just
when the majority is breathing a sigh of relief, the market may do
what it does best - drop anew and confuse all but the sharpest
investors.
Could the current rally simply be one of those snapback rallies
that ensnare unsuspecting investors?
Bears point out that between the September 1929 bull market high
and the mid-1932 bear market low, there were four bull markets -
one of which was a 46% rally that lasted 148 days. Yet, during that
nearly three-year period, the stock market still lost more than 80%
of its value. The bears say the current rally is a snapback rally
that will give way to further declines down the road.
Bulls, by contrast, say the current rally, which has driven the
S&P 500 up 52% since its March 9 low, is so strong that it
heralds a new bull market as opposed to just being a bear market
rally. Supporting their claim is recent data that suggests the
economy is finally starting to stabilize.
So, who's right? The bulls or the bears?
Ironically, they both could be right. By definition, we're
clearly in a bull market. However, that does not preclude another
drop of 20%, which would signal a new bear market. This 20% drop
could happen in the next 90 days or it might not happen for two or
three years. According to the Morgan Stanley Smith Barney Asset
Allocation Committee, it is likely that the equity market index
lows reached in March 2009 will not be breached over the remainder
of this year, and that the economic recovery which is beginning to
take hold should be firming over the course of the third quarter
and fourth quarter of this year. Like all investors, we have no way
of knowing with precision when the next 20% drop will happen.
Instead, we take the news as it happens and do our best to adjust
accordingly to help meet your goals and objectives.
Weekly Focus - Think About It
"Learn every day, but especially from the experiences of others.
It's cheaper!"
-- John Bogle
For your convenience the sources have been listed below:
http://www.realtor.org/press_room/news_releases/2009/08/strong_uptrend?LID=R...
http://www.marketwatch.com/story/us-july-existing-home-sales-up-4th-straight-m...
http://bespokeinvest.typepad.com/bespoke/2009/08/5168-in-165-days.html
https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentar...
http://www.bloomberg.com/apps/news?pid=20601103&sid=afWPpZ3Wc36k
http://www.prudentwealth.com/quotes.htm
