The Markets
Special
Post-Election Analysis
With the election behind us, what’s next for the economy and
the financial markets? In this special analysis, we’ll take a look at what the
election means, how the markets are reacting, and where we go from here.
What the Election Means
For starters, the political makeup of the country hasn’t
changed much. President Obama remains in the White House, the Democrats are
still in charge of the Senate, and the Republicans retain the House. With no
significant change in the balance of power, both parties will have to find ways
to compromise in order to keep the country moving forward and to avoid the
economy falling off the looming fiscal cliff.
Economically, our politicians need to tackle two major
issues – the fiscal cliff and unemployment.
The fiscal cliff is perhaps the biggest and most immediate of
the two. As a result of previous legislation, deep, automatic federal spending
cuts and tax increases will take place in January unless the President and
Congress agree to some alternative plan. If they fail to reach an agreement,
going over the cliff, “would not only risk another recession, but would
intensify anxiety about the dysfunction of the U.S. political system,” according
to The Wall Street Journal.
On a related note, our ever-growing national debt is deeply
entwined with the fiscal cliff issue. If Washington can effectively solve the
cliff issue, it might also put the deficit on a path to sustainability – and
that could be great news for the economy and the markets.
The second issue is unemployment and it is deeply entwined
with economic growth. While the unemployment rate has come down, it’s still too
high as, “roughly 3.6 million Americans have been without work for a year or
more and are still looking,” according to The
Wall Street Journal. Government policies and regulations have a major
impact on corporate America’s desire to hire and expand. If our leaders can
enact pro-economic growth policies, it might encourage businesses to reinvest
and hire more people.
Here are several other things to keep in mind as a result of
the election:
·
Health
care overhaul. Love it or loathe it, it’s here to
stay. Among other things, companies with 50 or more full-time equivalent
employees will be required starting in 2014 to provide health-insurance
benefits or pay a penalty. While small businesses may not be happy about that,
at least they can now plan for it.
·
Tax
increases. President Obama has said he’d like
to see taxes rise for couples earning more than $250,000 a year. Also, tax
rates on dividends and capital gains may rise. Of course, these won’t happen
unless Congress passes them.
·
Tax
breaks. Both sides seem to agree that
certain tax breaks and loopholes will have to go as part of any compromise. And,
while this might avoid raising tax rates,
it would mean a tax increase for
those affected.
·
Entitlement
reform. Any “grand bargain” on the deficit
will likely mean changes to Social Security and Medicare. In other words, we
could see Democrats agreeing to reductions in benefits in exchange for
Republicans agreeing to tax increases or closing tax loopholes.
·
Easy
money. With the President’s reelection, Federal Reserve policy is
likely to remain “easy.” This could mean more rounds of quantitative easing and
continued low interest rates.
The economic issues facing our country are serious and the
folks in Washington know it. They also realize it will take compromise to get
things done. As CNN said, “Both sides agree the best outcome would be a broad
deal addressing the overall need for deficit reduction, including reforms to
the tax system and entitlement programs such as Social Security, Medicare, and
Medicaid.” Let’s hope our politicians put politics aside and do what’s best for
our country to get us growing strongly on the road to economic prosperity.
How the Markets Are Reacting
With the polls showing the President in the lead going into
Election Day, the financial markets shouldn’t have been surprised when he won –
but it appears they were. U.S. stocks dropped 3.6 percent in the two days after
the election before finishing slightly higher on Friday, according to data from
Yahoo! Finance.
Looking at history, it’s interesting to note that the stock
market performed quite well during President Obama’s first term. The S&P
500 index rose 76 percent from inauguration day to last week’s Election Day. By
contrast, it declined 13 percent during George W. Bush’s first term, rose 60
percent during Bill Clinton’s first term, and rose 25 percent during Ronald
Reagan’s first term, according to MarketWatch. How much of those returns can be
attributed to each President’s policies is anybody’s guess, so it’s hard to draw
solid conclusions from them.
In terms of sectors to monitor, MarketWatch says the
following might benefit from the election results:
·
Healthcare.
Drug companies and insurers might benefit from the healthcare mandate as
coverage expands over time.
·
Home
construction and real estate. Continued quantitative easing and
low interest rates may bode well for the housing market. This could be very
beneficial for the economy as housing plays a significant role in economic
growth.
·
Precious
metals. Gold prices rose last week as
investors think continued quantitative easing could be bullish for the shiny
metal.
Where We Go From Here
Putting the election behind us has removed one hurdle to
moving the country forward. With campaigning out of the way, Washington can get
back to work.
As Congress and the President engage in posturing and
gamesmanship over the fiscal cliff and the tax and entitlement reform issues,
be prepared for volatile stock prices over the next couple months. Ironically,
politicians may not take decisive action on these issues until forced to
through the pressure of lower stock prices.
Aside from the pressing issues, is there a reason for optimism
on the economy? Yes. According to Bloomberg, “The median prediction of 37
economists surveyed by Blue Chip Economic Indicators is that during the next
four years, economic growth will gather momentum as jobless people return to
work and unused machinery is put back into service.” Bloomberg also pointed out
the following positive indicators:
·
Banks have strengthened their
balance sheets.
·
Most households, which borrowed too
much during the housing bubble, have pared their debt back to normal levels
through a combination of frugality and default.
·
Upper-income households’ balance
sheets are in good shape, although mortgage debt remains a heavy burden at
lower-income levels, says Mark Zandi, chief economist of forecaster Moody’s
Analytics as quoted by Bloomberg.
·
Housing prices have gone from
falling to rising, buoying confidence.
·
Increased consumer spending should
induce more business investment in a virtuous circle.
·
There’s pent-up demand for
residential and commercial construction.
Stepping outside the U.S., we still have major economic and
budget issues in Europe, China is going through a once in a decade leadership
change while its economy slows down, and the Middle East, as always, is a
wildcard.
As you can see, we have a lot on our plate to monitor! And,
as your advisor, we’re doing our best to keep you well positioned to benefit no
matter what Washington throws at us.
Data as of 10/9/12
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-2.4%
|
9.7%
|
12.3%
|
8.1%
|
-1.0%
|
4.7%
|
|
DJ
Global ex US (Foreign Stocks)
|
-1.9
|
6.8
|
3.1
|
-0.3
|
-6.8
|
7.1
|
|
10-year
Treasury Note (Yield Only)
|
1.6
|
N/A
|
2.0
|
3.5
|
4.2
|
3.9
|
|
Gold
(per ounce)
|
3.2
|
10.4
|
-2.6
|
16.2
|
15.9
|
18.4
|
|
DJ-UBS
Commodity Index
|
0.3
|
0.1
|
-5.3
|
1.8
|
-5.3
|
3.2
|
|
DJ
Equity All REIT TR Index
|
-2.0
|
14.4
|
20.3
|
19.6
|
3.6
|
11.7
|
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.
Weekly Focus – A Salute to Our Veterans
As we honor our
Veterans, we’d like to share an excerpt from the President’s Veterans Day
Proclamation:
“Whether they
fought in Salerno or Samarra, Heartbreak Ridge or Helmand, Khe Sanh or the
Korengal, our veterans are part of an unbroken chain of men and women who have
served our country with honor and distinction. On Veterans Day, we show them
our deepest thanks. Their sacrifices have helped secure more than two centuries
of American progress, and their legacy affirms that no matter what confronts us
or what trials we face, there is no challenge we cannot overcome, and our best
days are still ahead.”
Thank you to all
who are serving, who have served, and to the families and friends supporting
our Veterans. We truly appreciate all you do for our country.
Value vs. Growth Investing (11/9/12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|||||||||
|
|
|||||||||
|
|
|||||||||
|
|
|
-2.25
|
11.72
|
-3.80
|
-0.85
|
14.48
|
10.87
|
1.62
|
|
|
|
|||||||||
|
|
|
-2.39
|
12.08
|
-4.35
|
-1.22
|
15.14
|
9.99
|
1.05
|
|
|
|
|
-2.23
|
13.48
|
-3.14
|
0.19
|
18.16
|
10.52
|
2.40
|
|
|
|
|
-2.16
|
13.76
|
-5.25
|
-2.71
|
13.42
|
10.78
|
2.10
|
|
|
|
|
-2.81
|
9.40
|
-4.56
|
-0.99
|
14.08
|
8.68
|
-1.60
|
|
|
|
|
-1.82
|
11.11
|
-2.02
|
0.33
|
12.65
|
12.93
|
2.66
|
|
|
|
|
-1.62
|
12.10
|
-1.33
|
0.80
|
15.36
|
14.87
|
3.94
|
|
|
|
|
-1.75
|
10.19
|
-2.66
|
-0.75
|
7.83
|
12.92
|
1.52
|
|
|
|
|
-2.07
|
11.14
|
-2.00
|
1.03
|
14.93
|
10.91
|
2.34
|
|
|
|
|
-1.98
|
9.61
|
-2.94
|
-0.14
|
12.65
|
13.15
|
3.68
|
|
|
|
|
-2.03
|
9.36
|
-2.16
|
-0.07
|
12.58
|
11.67
|
2.89
|
|
|
|
|
-1.52
|
8.08
|
-4.07
|
-1.48
|
9.55
|
13.91
|
2.48
|
|
|
|
|
-2.38
|
11.46
|
-2.57
|
1.19
|
15.89
|
13.85
|
5.64
|
|
|
|
|
-2.10
|
12.95
|
-2.73
|
0.29
|
17.27
|
11.58
|
2.89
|
|
|
|
|
-2.04
|
12.62
|
-4.67
|
-2.25
|
12.00
|
11.53
|
2.06
|
|
|
|
|
-2.63
|
9.89
|
-3.92
|
-0.44
|
14.38
|
9.50
|
-0.31
|
|
©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:
Black Friday
November is a month for turkey,
pumpkin pie, and cranberry sauce. For
leaves piled so high you could dive right into them; for crisp mornings, cold
nights, and football.
It’s also a month for shopping.
I’m talking about “Black Friday,”
the day after Thanksgiving, a veritable Christmas Day for retailers around the
country. That’s because as many as 152
million people were expected to shop on Black Friday last year—up 10 percent
from the year before. Think about that: one hundred and fifty-two million
people! All of them hoping to get
their holiday shopping done early by securing the best deals before the shelves
are stripped clean.
The ironic thing is that many people
who shop on Black Friday actually end up losing money instead of saving
it. That’s because in all the frenzy and
excitement of chasing after deals, it’s easy to spend more money than what you
planned. So, to keep your wallet “in the
black” this Black Friday, here are a few things to remember:
1. Be careful driving to the store.
If you’ve ever driven on Black
Friday, you know that the roads can be chaotic.
People are out in droves. And
with everybody trying to get their hands on the latest video game console, or
designer purse, drivers aren’t always displaying the best judgment. Speeding, reckless turns, and
bumper-to-bumper traffic can lead to accidents.
Accidents can lead to costly car repairs and higher car insurance
premiums … surely erasing whatever savings you hoped to gain.
2. The deals may be great, but the quality may not.
This is especially true of
electronics. While items on sale may be
discounted, the top-of-the-line, brand-name products might not be. Retailers know that consumers are usually willing
to pay top-dollar for these, so they have little incentive to provide lower
prices. Alternatively, you can sometimes
find good deals on top-brand items after Black
Friday.
3. Beware of impulse buying
Once you’ve entered a store,
retailers go to great lengths to get you to buy items you hadn’t originally
intended to buy. Even grocery stores do
it—ever notice the gum, candy bars, and lurid magazines they sell next to the
check-out stand?
Impulse buying can be taken to a
whole new level on Black Friday. It’s
easy to get caught up in the vast inventory of merchandise around you,
especially if it’s on sale. While you
may initially have gone to a store just to get a new cell phone, it’s easy to
look around and see those great headphones on sale, or that nifty digital
picture frame. Master the impulse to buy
these items, even if they’re a “great deal.”
No matter how great the deal is, they still cost money, and they’re not
what you went shopping for. So buying
them means you’re giving up money for the things you really want for the things you only want right now.
4. Use cash, not credit cards.
Cash is handy on Black Friday,
because it can help limit impulse shopping.
If you only have enough cash to buy the items on your list, you’ll be
immune to temptation.
More to the point, though, is the
danger of credit cards on Black Friday.
Some experts estimate that nearly 30% of consumers will use a credit
card for their holiday shopping. While
credit cards make shopping convenient, they can be a major drag on your
finances. The average fixed interest
rate for credit cards in 2012, as of this writing, is 13.81%. Store-issued credit cards are even
worse. These may contain special offers,
such as 10% off the first purchase using the card. But their interest rates are high, sometimes
over 20%. Any savings you make on Black
Friday could be obliterated by these rates alone. For that reason, leave your credit card at
home and stick to cash as much as possible.
5. Sometimes, you don’t even need to leave your house.
Nowadays, most retailers offer the
same types of deals online as they do in their stores. Ever heard of Cyber Monday? It’s the e-version of Black Friday, taking
place a couple of days later. Experts
estimate that in 2010, Black Friday had only five percent more deals than Cyber
Monday did. You’ll want to check
shipping costs before you buy anything, but as long as they’re not exorbitant,
shopping from home might be the best way to keep your wallet feeling jolly this
holiday season.
Hopefully you find these tips helpful. But no matter where, how, or if you shop, I
want to wish you and yours a happy Thanksgiving, and a wonderful holiday
season.
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.
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.
* To unsubscribe from our “market commentary” please reply to this e-mail
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