As another year ends, we look back and reflect on a year that many thought would be tough for the markets. Equities started off the year moving higher and except for a slight pullback in June due to the Federal Reserve’s comments about stopping their quantitative easing program, continued to make new highs right into this year’s end. Declines due to worries over inflation, Syria, Iran and the various political scandals never materialized leaving the majority of investors sitting on the sidelines missing the year’s gains.
History once again repeats itself. Just like the previous 17 times that the government went down to the wire on a monetary shutdown this time was no different. Just before midnight on Wednesday the President signed the bill to re-open the federal government and increase the debt limit.
As we come into the month of September there is continued reason for caution in the short term. From the high of 1,700 on the S & P 500 index on August 1st, we have seen a decline of about 4% down to 1,632 on August 30th. Trading has been listless with fewer trades even on the days where values are up.
It seems that all is well again in the markets as today the S & P 500 index tops 1,700 for a new all-time high. The quick rebound from its June correction shows just how anxious investors are to get in on this run that for the most part they have missed.
Chairman Bernanke may very well be testing the waters and preparing investors to begin planning for the inevitable end of it’s easy money policy. Once the markets adjust to this change of policy, investors will realize that equity markets actually do quite well in a growing economy with normal interest rates. The next few days should make it clearer whether this is the short 5-7% correction we were expecting, or a longer correction to get us to more oversold levels and re-charge the energy for the next up leg.
Equity markets are in the news daily again since they have reached new highs. All of the attention is bringing comments of caution from investors who have been burned after seeing major corrections from previous market highs. For reasons that we have mentioned in previous communications and also in this letter, there is strong evidence […]
On Tuesday, the Dow Jones Industrials eclipsed the 15,000 level for the very first time. It has been 1,044 trading days since the market bottomed at 7,000 in March of 2009. This four year climb was accomplished much quicker than the last climb from Dow 7,000 to 14,000 which occurred over 2,621 trading days from 1997 to 2007.
It is inevitable that when prices in any investment market make new all-time highs that talk from the so-called investment experts turns pessimistic. While it is prudent to take a good look during these times at the market metrics and valuations regarding risk, turning gloomy is not always warranted.
These indexes like the Dow Industrials, S & P 500 and others are unmanaged indexes of a basket of stocks. 30 stocks in the Dow Industrials, 500 largest companies in the S & P 500 Index and so on. It is felt by many experts in the financial field that investing in these unmanaged indexes by way of index mutual funds is in the best, most cost effective way to invest in stocks. We feel differently. Searching the overall universe of mutual funds available (over 20,000 today) and identifying quality managers by using a definitive set of guidelines can produce significantly better returns over time. In this time period example the Dow Industrials and S & P 500 took over 5 years to overtake its best market top. Many of the managed funds with proven managers attained this feat two years ago! Once again, history has confirmed that well managed portfolios can and do outperform unmanaged indexes.
This quarter to date, 98% of the reporting companies have matched or beaten earnings estimates. The shift of monies from bonds into equities has begun this past month reversing a multi-year trend. The equity market returns of approximately 15% for 2012 are prompting savers to take a harder look at once again investing into equities to increase their returns. What if even a small portion of the huge cash reserves begin to do the same?