THE MARKETS
So far, so good.
The S&P 500 index rose every day last week and finished with a
2.7% gain. This gain came despite a disappointing jobs report,
which showed another 85,000 jobs were lost in December. A survey
from MarketWatch expected a gain of 15,000 jobs. On the
bright side, temporary-help jobs rose by 46,500. This is often a
precursor to growth in full-time jobs.
The Holiday shopping season turned out a little better than
expected as same store retail sales in December rose 2.8% compared
with a year ago, according to the ICSC sales index. Paradoxically,
consumer debt fell by a record $17.5 billion in November and
continued a streak of monthly declines that now stretches 10
months. Maybe consumers were paying cash for all their holiday
goodies?
This week ushers in a new earnings season and experts project a
whopper. Corporate profits are expected to rise 184% in the fourth
quarter of 2009 compared to the year-earlier period, according to
Thomson Reuters. Of course, numbers can be misleading as the
year-ago period included massive write-offs by major banks. By
comparison, these banks should show healthy profits in the quarter
that just ended as they are enjoying a wide spread between their
cost of money and the rate at which they can invest it. If you
remove the financial stocks, profits are expected to rise a more
benign 8%.
As with every new year, there will be challenges and
opportunities. Through diligence and discernment, we will try to
minimize the impact of the challenges and maximize the gain from
the opportunities.
|
Data as of 1/8/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
2.7%
|
2.7%
|
28.6%
|
-6.8%
|
-0.8%
|
-2.4%
|
|
DJ Global ex US (Foreign Stocks)
|
2.7
|
2.7
|
39.8
|
-4.7
|
4.5
|
1.1
|
|
10-year Treasury Note (Yield Only)
|
3.8
|
N/A
|
2.4
|
4.7
|
4.3
|
6.6
|
|
Gold (per ounce)
|
2.1
|
2.1
|
31.7
|
22.7
|
21.8
|
14.9
|
|
DJ-UBS Commodity Index
|
2.3
|
2.3
|
21.7
|
-3.2
|
-0.3
|
4.6
|
|
DJ Equity All REIT TR Index
|
-0.1
|
-0.1
|
35.0
|
-11.8
|
1.7
|
10.5
|
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 applicable or
not available.
DO THE WILD SWINGS WE'VE SEEN IN THE MARKETS
over the past couple years defy explanation? How is it that the
S&P 500 index can drop 56% between October 9, 2007 and March 9,
2009 and then turn on a dime and rise 69% over the next 10 months,
according to data from Yahoo! Finance? How can a company like Bank
of America decline 94% and then rise 380% - all in less than the 30
months ending December 31, 2009? Or, how about Alcoa dropping 87%
then more than tripling during the same period as Bank of America,
according to The Wall Street Journal?
Aren't the markets supposed to be "efficient" and
"rational?"
These massive swings seem to happen with frightening frequency
and investors who are unprepared for them will likely pay a heavy
price. Benjamin Graham, arguably the "father" of security analysis
and author of a classic book by the same name, said the price of a
stock reflects two components. The first component, investment
value, represents the discounted cash flow of all the company's
present and expected future earnings. The second component,
speculative value, is driven by sentiment and emotions such as fear
and greed.
It is not much of a stretch to suggest that an oscillation
between investment value and speculative value may help explain the
head-spinning volatility of the past few years. In other words, as
markets rise or fall rapidly in short periods, speculative value
may take prominence. Conversely, when markets are stable or
moderately trending, investment value may take the lead.
Keeping this idea of investment value versus speculative value
in mind can help us do a better job of maintaining a disciplined
perspective on market volatility. It can help us better understand
and potentially profit from the market's periodic "inefficiency"
and "irrationality."
Weekly Focus - Think About It
"The individual investor should act consistently as an investor
and not as a speculator."
--Benjamin Graham
For your convenience the sources have
been listed below:
www.marketwatch.com/story/payrolls-fall-85000-as-jobless-rate-stays-at-10-2010-01-08
www.icsc.org/apps/news_item.php?id=149&bid=1&t=s
finance.yahoo.com/news/December-retail-sales-show-apf-793227866.html?x=0
www.marketwatch.com/story/us-consumer-credit-down-record-amount-in-nov-2010-01-08
www.marketwatch.com/story/us-stocks-next-week-the-return-of-profit-growth-2010-01-09
online.wsj.com/article/SB10001424052748703535104574646530815302374.html
