Financial Market UpdateStrategicPoint of View®
June 21, 2010
Welcome to the StrategicPoint of View -- a market and economic overview of what occurred last week, what's up for this week, and our commentary on the economy and current market activity in general for “Making Money” listeners.
LAST WEEK
Headline inflation fell, core inflation rose – but, overall, there was no true meaningful inflation in sight. Other positive news: industrial production rose 1.2%. On the flip side: housing starts plummeted along with the Home Builders Index, jobless claims rose and leading indicators fell. Conclusion: expectations for economic growth are drifting lower.
S&P 500: 1,118 (up 2.38% for the week and up 0.27% on the year)
Dow: 10,451 (up 2.35% for the week and up 0.22% on the year)
NASDAQ: 2310 (up 2.94% for the week and up 1.81% on the year)
US Treasury 10 yr: 3.23% (from 3.23% last week)
Crude Oil (July): $77.18 (from $74.21 last week)
Gold (August): $1,258 (from $1,229 last week)
USD/Euro: $1.2384 (from $1.2100 last week)
THIS WEEK
New and existing home sales are expected to fall as the homebuyers credit program wraps up. May durable goods orders could dip after a strong April. Consumer sentiment and the revision of first quarter GDP should remain unchanged. Not a particularly inspirational week, but not a sufficiently negative one, either, to jolt the markets. International news may make the difference.
COMMENTARY
Summer arrived on Wednesday. The outdoor temperatures started heating up while markets suddenly lost their heat, and volume on the stock exchanges dropped, foreshadowing traders on vacation mode. We could use a little calm. Markets are off 7% to 8% from their late April highs but up roughly 6.5% from their early June lows. (The correction at its low point took 13.7% of value off prices.) The Dow and S&P are flat for the year, and the Nasdaq has risen a modest 1.8%.
Over the last week, the European Union worked vigorously to alleviate investor concerns regarding the health of the euro-zone economy. Outside of Greece and Spain, the European banking industry showed steadying (albeit not improvement), while the euro strengthened. China tried to forestall controversy at the upcoming G-20 meeting by removing the revaluation of the yuan as a topic of conversation (but succeeded in making its currency the subject of a series of announcements over the weekend).
Many people like to invest as the market declines. Having been accustomed to prices at a certain level or rising at a certain pace, investors think of falling prices as bargains. The challenge: it is hard to anticipate a bottom in any pullback. Is a security a steal when it declines 10%? 20%? Where is the bottom?
This is the problem BP is having (to take an exaggerated case). Some investment managers are touting both BP’s stock and bonds as “buys.” We aren’t saying that BP has or hasn’t reached bottom, (frankly it is not a stock we are watching) but we are saying that when controversy and uncertainty exist, it is very hard to estimate a true valuation of any holding.
Sure – on the party circuit – you will inevitably meet the boaster who brags that he/she bought BP (Greek debt/any market pariah) at the bottom and has made a bundle – making you look and feel like a total chump for being so blind. Our advice: offer the boaster congratulations and start a new conversation with someone not quite so smug. The boaster probably won’t tell you what else he bought, for good reason.
Being, overall, a conservative investment firm, we try to steer away from speculation and outsized gains or losses. We find that conservative investors are less likely to be disappointed (or elated) when they avoid chasing declining stocks all the way down.
A better investment strategy is to be patient and wait for the markets to stabilize. Then buy a little at a time. You may still be buying before the bottom, but you will be less likely find yourself at a party with nothing to brag about.
Tune in to News Talk 630 WPRO and 99.7 FM daily for our "Making Money Updates". Get the latest market news and our take on the day's events with our market commentary at 8:10am and 5:32pm. For more information, visit www.StrategicPoint.com.
*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors.
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