Commentary for the week ending 1-29-10

“As January goes, so goes the rest of the year.” So says the old Wall Street axiom. The market notched its third straight weekly loss and closed out its worst month in a year. For the week, the Dow lost 1.04%, the S&P was off 1.64%, and the Nasdaq fell 2.63%. For the month of January, the Dow lost 3.46%, the S&P fell 3.70%, and the Nasdaq fared the worst at -5.37%.

The January Effect states that if January produces a positive return, the year will be positive, and vice versa. Throughout history, this has proved true more than three out of four times, according to the Stock Trader’s Almanac. Of course, last year was an exception as January closed lower, but the market was significantly higher for the year. Will this year be the same? Only time will tell. What we do know, though, is this year has begun unlike many others. Economic data has come in mostly positive, but policies out of Washington, as well as macro economic events around the globe have investors worried. If this were an ordinary year, we might be worried about the January effect. Obviously these are not ordinary times.

This week we received more encouraging economic reports. Consumer confidence came in higher than expected. Fourth quarter GDP was solidly positive, as well, but the consumer spending portion underwhelmed. We also had more positive corporate earnings releases. Through Friday, nearly 80% of the S&P 500-listed companies that have released earnings so far have beaten estimates, according to a report from Thompson Reuters. This figure is well above the average of 60%. In ordinary times, these figures would be greeted with enthusiasm. As we mentioned above, these are not ordinary times.

Also this week, the Fed announced its rate will remain unchanged at 0-0.25%. We would like to see the rate rise as it indicates a healthy economy, and these extended low rates can inflate new bubbles. As for now, these low rates are seen as a positive, since inflation is look upon as being needed. Only time will tell if this was the correct prescription.

For the upcoming week, we will be keeping our eyes on several reports with the potential to move the market, in addition to the corporate earnings releases still coming out. Personal income and spending will be released on Monday. Auto sales on Tuesday. The big report we will be watching comes on Friday with the Unemployment rate. All are expected to come in slightly lower than their previous releases. As always, we will be watching closely for any surprises here.

Where are we investing now?

Little change here. The market has come a long way in a short time and we expected to see a pull-back at some point. Just not as fast or as strong as it did! Still, we remain bullish (optimistic) for the short term and are putting money to work on these big market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are sector we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.

Commentary for the week ending 1-22-10

An increasing populist message out of the White House frightened investors and contributed to a sharp selloff in stocks this week. At the close on Friday, the Dow was down 4.12% for the holiday-shortened week, the S&P was off 3.90%, while the Nasdaq fared the best at -3.61%.

What a wild - and ultimately disappointing - week it was. Stocks were up sharply on Tuesday with the anticipation of Scott Brown winning the important Senate election in Massachusetts. As I am sure you know by now, that is a blow to the 60 seat majority the Democrats had enjoyed. The enthusiasm from this election quickly faded Wednesday when China announced a reduction in lending in an effort to reign in its red-hot growth. This news sent the markets and commodities sharply lower.

The markets continued lower Thursday when President Obama announced plans to limit bank involvement in proprietary trading-a major revenue source to many banks. This is on top of the new “responsibility fee” being imposed on banks. Of course this news did not sit well with investors and the effects continued into Friday. Also contributing to the losses Friday were analyst downgrades in the tech sector, a flight to safety, and a fear the Fed chairman, Ben Bernanke, would not be reappointed to another term.

Despite these negative macro events, an overlooked statistic has emerged this week. About 20% of the S&P stocks have reported so far and nearly 80% of them have beaten estimates, per a report from Thompson Reuters. Yet as we have seen with earnings releases this week, investors have such high expectations that even a modest beat in earnings is met with a sharp sell-off.

There are a lot of events going on this week that have the potential to impact the market. Of course, we are still in the middle of earnings season, so we will receive a lot of information from them. On top of that, Monday we will get the existing home sales report which is expected to come in lower than the November reading. Tuesday is the release if the consumer confidence numbers and are expected to come in higher than last month. Wednesday is the Fed rate decision and no one expects to see a change from the 0-0.25% rate currently in place. The big news will come on Friday with the release of the fourth quarter GDP number. It is anticipated that it will come in substantially higher than the third quarter numbers. Any surprises with these numbers will certainly impact the markets.

Where are we investing now?

Despite the volatile week we just had, we are still unchanged in our investment approach. We remain bullish for the short term and are looking to put some money to work on these big market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are sector we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.

Commentary for the week ending 1-15-10

Mixed results from earnings and economic data released this week lead to a strong sell-off on Friday, giving the markets their first weekly loss of the year. For the week, the Dow was down 0.08%, the S&P lost 0.78%, and the Nasdaq was off 1.26%.

Despite the preliminary reports showing strength in the retail sector during the Christmas season, retail sales came in with a 0.3% loss for the month of December. Still, this was a slight gain from the previous year. More disappointing news came with the Beige Book release, which showed a stubborn weakness in the economy and unemployment continuing. Also on this negative trend, January consumer sentiment gained slightly from the previous month yet was below expectations, imports grew considerably and widened the trade deficit, the Consumer Price Index (a measure of inflation) came in slightly positive at 0.1%, and the U.S. Treasury reported a record deficit. The only bright spot in terms of economic releases came in the industrial production report which reported a 0.6% gain for December.

Last week marked the beginning of the corporate earnings season. We started off the week with disappointing news from Dow-component Alcoa, who reported earnings of 1 cent per share, below the 6 cents analysts forecasted. Later in the week, Intel came in well above expectations, yet the stock sold off. The last big name of the week was JP Morgan, who also beat expectations, yet sold off heavily on Friday. It is not a good sign for earnings to come in higher than expected, yet the market sells off. Investors may have very high expectations or may be looking for an excuse to sell. Either way, we are adding to our portfolios on these big down days.

We are heading full-steam into earnings season next week, despite the holiday on Monday. Bank earnings will be the main focus as many banks will be releasing earnings this week. After the disappointing results from the JP Morgan release, we remain cautious. It is possible that these banks will be writing off many losses to report lower earnings, alleviating some of the populist backlash they have been facing (A new bank tax? What is this government thinking?). Besides the corporate earnings, Wednesday we get the producer price index and housing starts. Thursday is the leading economic indicators report, which is expected to continue is upward trend. As always, we will be watching these releases carefully.

Where are we investing now?

Little change here. We remain bullish for the short term and are looking to put some money to work on the market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are an area we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.

Enjoy the day off Monday.

Commentary for the week ending 1-8-10

A solid start to the year for the markets as the Dow closed the week up 1.82%, the S&P was up 2.12%, and the Nasdaq topped them both at 2.68% while volatility hit the lowest levels of the past 12 months. This week we got some disappointing news in terms of employment, but retail sales and manufacturing activity showed signs of strength.

Unemployment numbers came in worse than expected for December with nonfarm payrolls dropping by 85,000. However, November numbers were revised from a loss of 11,000 to a gain of 4,000. The December unemployment rate remains unchanged at 10.0%, but the holiday season tends to make these measurements a little unreliable. Nonetheless, it is still a reminder of how weak the actual economy is. Some good news coming from these reports is that staffing companies have been hiring and we are looking at investment opportunities in this area.

Preliminary reports show holiday sales at retailers came in nearly 3% higher than the previous year. Part of this increase is due to fewer discounts, not necessarily an increase in traffic at these stores. This week we get the Retail Sales and Beige Book releases which will shed more light on these retail numbers. These reports are not believed to be overly optimistic and is something we will be watching very closely.

In addition to the Beige Book release Wednesday and Retail Sales on Thursday, this week will have plenty of news to digest. Corporate earnings releases begin coming in this week with the most notable name, Alcoa, being released on Monday. Thursday we will see business inventories and import prices. On Friday, we get the CPI, industrial production, and capacity utilization. These reports are expected to come in higher than their prior ones, but as we saw with unemployment, the U.S. economy remains weak so some disappointments are likely.


Where are we investing now?

We remain bullish for the short term and are looking to put some money to work on the market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently, U.S. treasuries are an area we are very bearish on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are an area we favor.