Schwartz Financial Weekly Commentary
October 3, 2011
The Markets
The word “volatile” has been so overused in the media, but it’s hard to find a better way to describe recent movements in the financial markets. On any given day, the markets can rise or fall based on the latest thinking about euro-zone sovereign debt problems, a possible U.S. or Chinese recession, weak banks, inflation, deflation, or poor job numbers.
In the just completed third quarter, uncertainty (there’s another overused word!) was in full bloom as the three major U.S.
Along those same lines, Goldman Sachs said we may be moving from the 2007-2009 “Great Recession” to an upcoming “Great Stagnation.” As quoted by Bloomberg, Goldman Sachs said a “Great Stagnation” would be characterized by “‘high and sticky’ unemployment, an average 0.5 percent growth rate in per capita gross domestic product, and stock markets that underperform historical averages.”
But, not everyone agrees with that assessment. Warren Buffett told CNBC last week, “it’s very, very unlikely we’ll go back into a recession.”
So, who are you going to believe? The market’s jumpiness may reflect the fact that smart people have completely different views of the economy.
Data as of 9/30/11 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor's 500 (Domestic Stocks) | -0.4% | -10.0% | -1.3% | -1.0% | -3.2% | 0.9% |
| DJ Global ex US (Foreign Stocks) | 2.0 | -18.7 | -12.8 | -1.1 | -3.8 | 5.0 |
| 10-year Treasury Note (Yield Only) | 1.9 | N/A | 2.5 | 3.8 | 4.6 | 4.5 |
| Gold (per ounce) | -4.1 | 14.9 | 23.9 | 22.4 | 22.0 | 18.7 |
| DJ-UBS Commodity Index | -2.0 | -13.7 | -0.1 | -5.8 | -2.5 | 4.0 |
| DJ Equity All REIT TR Index | -1.5 | -6.6 | 0.4 | -2.1 | -2.4 | 9.1 |
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.
WHAT TO WATCH IN THE FOURTH QUARTER
Here are a few things that made the headlines in the third quarter and may affect the markets over the final three months of the year:
- The S&P 500 index dropped 14.3 percent in the third quarter and is now down 10.0 percent for the year.
What to Watch: Third quarter corporate earnings will start rolling in soon and investors will scour them for any sign of weakness. For the past few quarters, strong earnings helped the market recover from the Great Recession. While some earnings weakness may already be priced in the market, we have to wait for the actual earnings to see how the market reacts.
- Commodities and precious metals experienced significant price movements during the quarter. Gold prices finished the quarter up 8 percent, while silver dropped 14 percent, according to MarketWatch. Oil prices declined 17 percent for the quarter, while copper dropped a stunning 26 percent. On the agricultural side, corn prices finished the quarter down 25 percent from their June 10 all-time high, according to The Wall Street Journal.
What to Watch: Recent declines in oil and copper prices are particularly noteworthy because they may presage a slowing worldwide economy. If the declines continue, it may not bode well for stock prices.
- The housing market is still weak and that puts a significant drag on economic growth. According to the most recent S&P/Case-Shiller Home Price Indices, housing prices around the country are back to where they were in the summer of 2003.
What to Watch: Mortgage rates are at a record low yet the housing market is still in the doldrums, according to Bloomberg. Any sign that housing is turning the corner could bode well for the economy and the markets.
- Interest rates on
What to Watch: If interest rates keep dropping in the fourth quarter, it may suggest investors are still in a fearful state. Ironically, it could be a good thing to see interest rates rise -- as long as it’s due to economic growth and not due to money printing by the Federal Reserve.
· Sovereign debt woes in Europe and budget wrangling in the U.S.
What to Watch: Continued bad news here could be very problematic. However, if there’s any concrete resolution to the Euro-zone debt problems or a credible bi-partisan budget solution in Washington
With the above issues looming, you can see why the markets are a bit nervous. Yet, even if the market swoons in the fourth quarter, it could make valuations so compelling that it sets the stage for the next bull market.
Weekly Focus – Think About It
“I wanted a perfect ending. Now I’ve learned, the hard way, that some poems don’t rhyme, and some stories don’t have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what’s going to happen next. Delicious Ambiguity.” --Gilda Radner
Value vs. Growth Investing (9/30/11)
| -0.66 | -9.34 | -7.61 | -14.92 | 1.08 | 1.75 | -0.59 | |
| -0.35 | -8.15 | -6.76 | -13.16 | 1.63 | 0.82 | -1.16 | |
| 0.19 | -7.79 | -6.14 | -12.53 | 1.83 | 0.57 | 0.02 | |
| -2.69 | -7.74 | -7.22 | -11.73 | 3.43 | 3.75 | 0.73 | |
| 1.71 | -9.43 | -7.04 | -15.49 | -0.77 | -1.89 | -4.49 | |
| -1.67 | -11.63 | -9.65 | -18.94 | -0.11 | 4.22 | 0.77 | |
| -1.46 | -11.11 | -9.27 | -18.13 | 1.20 | 4.93 | 1.10 | |
| -2.88 | -10.02 | -10.48 | -19.69 | 2.82 | 5.13 | 2.32 | |
| -0.60 | -13.84 | -9.20 | -19.00 | -4.37 | 2.45 | -1.40 | |
| -1.16 | -15.51 | -10.87 | -21.49 | -2.27 | 3.06 | 0.54 | |
| -1.43 | -17.38 | -12.85 | -23.60 | -4.13 | 1.99 | -0.64 | |
| -1.89 | -12.83 | -9.69 | -20.56 | 1.91 | 3.86 | 1.71 | |
| -0.12 | -16.16 | -9.87 | -20.07 | -4.53 | 3.25 | 0.26 | |
| -0.22 | -9.02 | -7.16 | -14.34 | 1.45 | 1.73 | 0.34 | |
| -2.67 | -8.43 | -8.03 | -14.01 | 3.40 | 4.12 | 1.20 | |
| 1.10 | -10.85 | -7.70 | -16.57 | -1.81 | -0.67 | -3.52 |
©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:
| Food & Clothing Drive Starting Monday, October 3, our office will be collecting food for Thanksgiving and winter coats for the homeless. Items may be dropped off at our office at 115 York Road, Jenkintown, Pa between the hours of 10 AM - 2 PM Monday through Thursday starting Monday through the last week of November |
October Important IRA Deadlines
October is almost here, and with the turning of the page comes some important IRA deadlines you should add to the calendar.
October 15, 2011
This deadline is actually October 17th since the 15th is on a Saturday this year. It is...
• the last day to complete a Roth recharacterization for a 2010 Roth conversion
• the last day to recharacterize a 2010 contribution
• the last day to remove an excess or unwanted 2010 contribution to avoid the 6% penalty for 2010
The deadline has been extended to October 31st for those taxpayers in federally declared disaster areas for Hurricanes Irene and Lee and for the Texas wildfires.
October 31, 2011
This deadline applies to trust beneficiaries of both IRAs and employer plans. It is the last day to provide an IRA custodian or plan administrator with a copy of the trust document or a listing of the beneficiaries and their entitlements. If this deadline is missed, the trust cannot be treated as a see-through trust.
These are deadlines you do NOT want to miss as they all have serious tax implications for IRA account owners and beneficiaries.
October 15, 2011
This deadline is actually October 17th since the 15th is on a Saturday this year. It is...
• the last day to complete a Roth recharacterization for a 2010 Roth conversion
• the last day to recharacterize a 2010 contribution
• the last day to remove an excess or unwanted 2010 contribution to avoid the 6% penalty for 2010
The deadline has been extended to October 31st for those taxpayers in federally declared disaster areas for Hurricanes Irene and Lee and for the Texas wildfires.
October 31, 2011
This deadline applies to trust beneficiaries of both IRAs and employer plans. It is the last day to provide an IRA custodian or plan administrator with a copy of the trust document or a listing of the beneficiaries and their entitlements. If this deadline is missed, the trust cannot be treated as a see-through trust.
These are deadlines you do NOT want to miss as they all have serious tax implications for IRA account owners and beneficiaries.
Best regards,
Michael L. Schwartz, RFC®, CWS®, CFS
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.
Securities and advisory services offered through First Allied Securities, Inc., Member FINRA/SIPC
Schwartz Financial Service, Inc 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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