THE MARKETS
The American consumer is not dead.
Last week, a report from the Commerce Department showed a
surprising increase of 0.3% in February U.S. retail sales compared
to the month before. That may not seem like much of an increase,
but it was much better than the drop of 0.2% expected by
economists surveyed by Bloomberg. Importantly, it's also the fourth
rise in the past five months and represents an increase of 3.9%
over the year-ago period.
So, how can consumers ramp up spending when unemployment is so
high? Barron's magazine pointed out a few reasons why this
is occurring.
First, it is not unusual at this stage of the recovery. "The
last time the unemployment rate broke double digits, during the
deep recession of 1981-82, consumer spending also was increasing,"
according to Barron's.
Second, the government's February 2010 index of aggregate weekly
payrolls was less than 1% below the number in February 2009. So,
even though unemployment is high, total payroll income hasn't
dropped dramatically in the last 12 months.
Third, the stock market has rallied substantially since a year
ago. As a result, the "wealth effect" from a rising stock market
helped consumers feel a bit wealthier and loosened their purse
strings.
And, let's face it, Americans love to shop!
When you combine rising consumer spending with government
stimulus and loose monetary policy, you have a recipe for rising
stock prices. And, as if on cue, last week, the S&P 500 hit a
new 17-month high, according to CNBC.
|
Data as of
3/12/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
1.0%
|
3.1%
|
52.0%
|
-6.5%
|
-1.0%
|
-1.8%
|
|
DJ Global ex US
(Foreign Stocks)
|
1.8
|
0.6
|
73.5
|
-6.1
|
2.9
|
0.9
|
|
10-year Treasury Note
(Yield Only)
|
3.7
|
N/A
|
2.9
|
4.6
|
4.5
|
6.4
|
|
Gold
(per ounce)
|
-2.5
|
0.2
|
19.6
|
19.5
|
20.1
|
14.3
|
|
DJ-UBS Commodity Index
|
-1.7
|
-4.8
|
24.8
|
-7.5
|
-4.0
|
2.8
|
|
DJ Equity All REIT TR Index
|
3.6
|
7.5
|
91.9
|
-11.4
|
2.9
|
12.0
|
| 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. |
THE HARDER THEY FALL, the higher they rise.
Would it surprise you to know that the worst stocks during the bear
market that ran from October 9, 2007 to March 9, 2009 turned out to
be - by far - the best performing stocks over the next 12
months?
Bespoke Investment Group did an interesting study where they
took the S&P 500 stocks and ranked them from 1 to 500 with 1
being the worst performer and 500 being the best performer during
the October 9, 2007 to March 9, 2009 bear market. Then, they sliced
this ranking into deciles, with decile 1 being the 50 worst
performers, decile 2 the next 50 worst performers all the way to
decile 10, which were the 50 best performers.
They discovered that decile 1 (the 50 worst performing stocks
during the bear market) turned around and rose, on average, 371%
during the next 12 months that ended March 9, 2010. Decile 2, the
next 50 worst performers, rose 184% over the ensuing 12 months. By
contrast, decile 10, the 50 best performing stocks during the bear
market, only rose 30% over the following 12 months. Essentially,
the worst stocks during the bear market performed the best during
the bull market and vice versa.
The study also showed that the average change of all
stocks in the S&P 500 was 122% over the 12 months following the
March 9, 2009 low.
This study points out one reason why understanding human emotion
is an important factor in successful investing. Think of it this
way: on March 9, 2009, at the bear market low, would you have been
enthusiastic about buying stocks that had declined 80-90% over the
previous 17 months? Probably not because your emotions would have
been so rattled, yet, those were the types of stocks that turned
out to be the best performers over the next 12 months, according to
Bespoke Investment Group.
As the last few years have shown, successful investing sometimes
requires that you gather your courage and do what seems most
frightening because the point of maximum "frightening" may also be
the point of maximum profit potential.
For your convenience the sources
have been listed below:
www.census.gov/retail/marts/www/retail.html
www.bloomberg.com/apps/news?pid=20601068&sid=aL1NPx_ipT4I
online.barrons.com/article/SB126843887008361355.html
www.cnbc.com/id/35840993
www.bespokeinvest.com/thinkbig/2010/3/10/decile-performance-durin...
thinkexist.com/quotation/i_learned_that_courage_was_not_the_absen...
