THE MARKETS
The U.S. stock market continued grinding its way higher last
week as the Dow Jones Industrial Average briefly pierced the 11,000
level for the first time since September 2008, according to The
Wall Street Journal. Back then, the Dow was piercing 11,000 on
its way down to below 7,000 in March 2009. This time, it's on its
way up from the March 2009 low. Same number, but clearly a much
different feel.
The main difference between then and now is the economy--it was
bad then and getting worse, now, it is still weak but clearly
improving.
On the improvement side, Thomson Reuters says analysts are
looking for a 37% rise in first-quarter 2010 corporate earnings.
Retailers reported a whopping 9.1% jump in March same-store sales,
according to Barron's. On top of that, "The service sector
is growing at the fastest pace since May 2006, and manufacturing
the most since 2004. Employers are hiring again, and sales of
existing homes rose 8.2% in February," according to
Barron's. Stats like that are keeping investors interested
in owning stocks even at ever-increasing prices.
Of course, the problems of the Great Recession are still here
such as high unemployment, unsustainable budget deficits, tight
credit, and weak housing. However, there is a potential solution to
working our way out of this hole. The Economist magazine
calls it a "re-balancing" of the world economy. Put succinctly, the
magazine said, "If Americans save more and spend less while other
big countries do the opposite, the world economy will prosper." In
effect, the U.S. will need to export more to other countries who
gobble up our goods and services. A weaker dollar could speed up
this re-balancing; and, word that China might let its currency
appreciate against the dollar in the near future supports this
re-balancing theory, according to MarketWatch.
The effectiveness of this re-balancing could determine whether
the next 1,000-point move in the Dow Jones Industrial Average is up
to 12,000 or down to 10,000.
|
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)
|
1.4%
|
7.1%
|
39.4%
|
-6.1%
|
0.2%
|
-2.3%
|
|
DJ Global ex US
(Foreign Stocks)
|
0.8
|
3.8
|
51.2
|
-6.5
|
4.1
|
1.0
|
|
10-year Treasury Note
(Yield Only)
|
3.9
|
N/A
|
2.9
|
4.7
|
4.5
|
5.8
|
|
Gold
(per ounce)
|
2.6
|
4.4
|
30.9
|
19.4
|
21.9
|
15.1
|
|
DJ-UBS Commodity Index
|
0.7
|
-3.2
|
19.1
|
-7.9
|
-3.1
|
3.6
|
|
DJ Equity All REIT TR Index
|
4.1
|
14.8
|
78.0
|
-9.5
|
4.8
|
11.9
|
| 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. |
U.S. COMPANIES ARE SITTING ON A RECORD PILE OF
CASH and that could buoy stock prices as companies use
their cash to repurchase stock, according to Bloomberg. At the end
of 2009, S&P 500 companies were sitting on a record $831
billion in cash, according to Standard and Poor's. This cash hoard
grew as companies spent only 28% of their operating profits on
stock buybacks in 2009, according to Standard and Poor's as
reported by Bloomberg. Further, Bloomberg said, "The last time the
ratio dropped to that level, the S&P 500 subsequently climbed
for four years."
Prominent money manager and Forbes columnist Ken Fisher
said in a Bloomberg television interview in early April, "There's
cash sitting there, waiting to come in later, which will then later
help buoy both businesses and stocks. This bull market will carry
on for several years." Yes, it is getting easier to find reasons
for the stock market's year-long rise. But, just like in the late
1990s, a good fundamental story can get taken to an extreme and end
in major disappointment.
One of the hallmarks of great investors is their ability to
manage their enthusiasm. Rather than succumbing to euphoria, they
try to maintain perspective. They aim to balance the positive with
the potential negatives and not get carried away with an untamed
crowd.
With the S&P 500 still down more than 20% from its all-time
high and trading volume relatively low, we are likely not in danger
(yet) of a new wave of market hysteria. However, we are always
mindful of what could go wrong and, if this market keeps rising, so
will our concern about the danger of getting caught in an "untamed
crowd."
For your convenience the sources
have been listed below:
online.wsj.com/article/SB10001424052702304703104575174302726575466...
online.barrons.com/article/SB127085425093874787.html
www.economist.com/opinion/displaystory.cfm?story_id=15816636
www.marketwatch.com/story/pboc-advisor-urges-managed-float-for-yuan-201...
www.bloomberg.com/apps/news?pid=20601087&sid=a8XOcU9udFWc&pos...
www.allgreatquotes.com/investment_investors_quotes.shtml
