Schwartz Financial Weekly Commentary 8/20/12

The Markets

Like the tortoise beating the hare, the U.S. stock market has been slowly and steadily inching its way up over the past few weeks.

Since touching an intraday low on June 4, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 index have all rallied more than 10 percent, according to CNBC. In fact, the Dow and S&P 500 have now risen for six consecutive weeks. It feels a bit like a “stealth” rally as volume has been very low and volatility, as measured by the CBOE volatility index, is at its lowest level in five years.

Even Europe is enjoying a strong run. As CNBC reported, “European shares hit 13-month highs, extending their longest weekly winning streak in seven years, amid hopes that euro zone policymakers will work closely to tackle the debt crisis.”

Not everything is going up, though. While improving economic data on the job market, the housing industry, the index of leading indicators, retail sales, consumer purchasing, and consumer sentiment has helped the stock market, it’s done just the opposite to the Treasury market, according to Bloomberg. Prices for the 10-year Treasury just posted their worst four-week drop since December 2010, says Bloomberg. The fall in bond prices – and the corresponding increase in bond yields – suggests traders think the improving economic data may forestall the Federal Reserve from stepping in with another round of monetary stimulus.

Once summer is over and the big Wall Street traders get back from the Hamptons, we’ll get a better read on whether this tortoise-like market will keep inching its way up or decide to take a breather.

Data as of 8/17/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.9%	12.8%	18.8%	13.1%	-0.4%	4.1%
DJ Global ex US (Foreign Stocks)	0.6	5.4	-4.3	3.4	-4.4	6.0
10-year Treasury Note (Yield Only)	1.8	N/A	2.2	3.5	4.7	4.3
Gold (per ounce)	-0.2	2.6	-9.8	20.1	19.7	17.9
DJ-UBS Commodity Index	-0.1	1.7	-10.4	4.6	-2.7	3.5
DJ Equity All REIT TR Index	1.2	16.9	21.9	26.6	3.9	11.4

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.

SOMETHING BEGAN IN THE STOCK MARKET 30 YEARS AGO that still has people shaking their heads today. Back on August 12, 1982, the Dow Jones Industrial Average closed at its 1980-82 recession low of 776.92, according to The Wall Street Journal. Around the country, it was just an ordinary day in an otherwise economically challenged economy. But, on Wall Street, it was the beginning of something extraordinary.

Depending on your age, you may remember that back in 1982, the prime lending rate peaked at 17 percent, the unemployment rate was near 11 percent, and inflation was on the way down from the double-digit rates of 1979-1980, according to The Wall Street Journal and the Bureau of Labor Statistics. Demographically, the oldest Baby Boomers were a youthful 36 and just getting ready to unleash their penchant for big spending. Ronald Reagan was President, Paul Volcker was head of the Federal Reserve, and, while an unlikely pair, they were about to make history together. 

Reflecting back on the summer of 1982 in a 2009 Wall Street Journal piece, Jason Desena Trennert wrote, “Starting as a trickle, the decline in inflation and long-term interest rates picked up speed that summer, and investors in common stocks began to have confidence that they were being liberated from the shackles of double-digit inflation and interest rates, an innovation-sapping regulatory regime, and a tax code that was antithetical to capital formation.”

Awakening from its slumber the day after August 12, 1982, the stock market took off on an unprecedented 18-year bull market run that saw the Dow Jones Industrial Average rise a spectacular 1,500 percent, according to Bloomberg.

So, here we are, 30 years removed from the start of that great bull market and what do we have to show for it? Well, since that great bull market ended in early 2000, we’ve experienced two harrowing bear markets that saw the broad market decline around 50 percent. And, today, we’re still below the all-time high of late 2007.

Yet, here’s what is extraordinary. Despite the weak markets we’ve experienced since 2000, if you go back to August 1982 and look at the returns for the past 30 years, the market has done extremely well. According to The Wall Street Journal, the total return of the S&P 500 index was a compound 11.3 percent between August 1982 and now. That’s even better than the average return for the entire 20^th century, which was 10.1 percent, according to the Journal.

It’s easy to get too caught up in what’s happening today in the markets and lose sight of the big picture. Instead, it’s better to take the long view. While past performance is no guarantee of future results, the past 30 years have shown that patience may be rewarded.

Weekly Focus – Think About It…

“Patience is a bitter plant, but it has sweet fruit.”

--Old Proverb

Value vs. Growth Investing (8/17/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	1.06	14.11	4.21	9.01	20.83	15.92	2.34
Large Cap	0.95	14.80	4.10	9.29	21.97	15.12	1.85
Large Core	1.22	14.88	3.48	9.07	23.96	15.03	3.27
Large Growth	1.82	19.26	4.94	9.85	24.48	17.86	4.33
Large Value	-0.27	10.58	3.80	8.92	17.30	12.53	-2.28
Mid Cap	1.18	12.26	4.86	8.06	17.21	17.83	3.27
Mid Core	1.22	12.87	4.72	7.79	21.07	19.63	4.45
Mid Growth	1.65	12.83	4.53	7.72	13.54	18.60	3.22
Mid Value	0.66	11.10	5.34	8.64	16.94	15.18	1.82
Small Cap	2.01	11.90	3.51	8.66	19.02	17.89	3.84
Small Core	2.25	11.79	3.43	8.22	16.48	16.82	2.61
Small Growth	1.91	11.85	3.49	8.91	18.94	18.26	3.78
Small Value	1.88	12.08	3.61	8.92	21.87	18.53	4.94
US Core	1.29	14.30	3.72	8.78	22.92	16.19	3.62
US Growth	1.79	17.43	4.77	9.37	21.85	18.14	4.13
US Value	0.06	10.79	4.09	8.86	17.56	13.48	-0.96

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes:

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Michael L. Schwartz, RFC®, CWS®, CFS

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Michael L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

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