Schwartz Financial Weekly Market Commentary 4/8/13

The Markets

U.S. investors puzzled over disparate pieces of economic and world news last week. By the end of the week, major U.S. markets had tumbled indicating investors didn’t like what they’d seen.

 

Under new leadership, the Bank of Japan (BOJ) announced an aggressive stimulus program that will inject $1.4 trillion into its economy over the next two years. The effort is intended to end decades of stagflation. Stagflation is a period of economic stagnation characterized by rising inflation, higher unemployment, lackluster consumer demand, and lack of growth in business activity. Shares in the Japanese market, which closed before U.S. jobs numbers were announced, rose to almost a five-year high.

 

Elsewhere in Asia, escalating rhetoric from North Korea kept tensions high on the Korean Peninsula and negatively affected investor sentiment.

 

In the U.S., economic news was largely disappointing and suggested a slowdown in the U.S. economy may be ahead. Manufacturing and service numbers came in below expectations, and a U.S. Department of Labor report showed far fewer jobs were added last month than expected. On the positive side, a different report showed unemployment had ticked lower, moving to 7.6 percent from 7.7 percent.

 

After hitting an all-time high on Tuesday, the Standard & Poor’s 500 Index finished the week down 1 percent. The Dow Jones Industrials and NASDAQ Indices also tumbled, finishing the week down 0.1 percent and down 1.9 percent, respectively.

 

U.S. Treasury markets benefitted from uncertainty about the strength of U.S. economic growth, the outcome of the Japanese stimulus program, and the potential for violence in Korea. The yield on 10-year U.S. Treasury notes fell to 1.7 percent.

 

Data as of 4/5/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.0%	8.9%	11.1%	9.4%	2.5%	5.9%
10-year Treasury Note (Yield Only)	1.7	N/A	2.2	4.0	3.6	4.0
Gold (per ounce)	-1.9	-7.4	-3.9	11.5	11.1	17.2
DJ-UBS Commodity Index	-2.5	-3.6	-5.3	-0.3	-8.4	1.9
DJ Equity All REIT TR Index	2.0	10.0	20.4	16.9	6.2	12.4

Notes: S&P 500, 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.

 

There’s a new bric in towN. You’ve probably heard of the BRIC countries – Brazil, Russia, India, and China. The nickname was created in 2001when Jim O’Neill, an economist and the future Chairman of Goldman Sachs, used it to describe the countries of the world that would drive future economic growth. He was right about the fact they would drive economic growth. According to The Economist, “The BRICS alone have been responsible for 55 percent of global growth since the end of 2009. Dragged down by debt and austerity, the 23 countries that make up the developed world contributed just 20 percent to that growth.”

 

You may have noticed The Economist capitalized the ‘S’ in BRICS. That’s because South Africa recently joined the team. It’s the smallest BRICS country with a population of just 50 million compared to more than 1 billion for both China and India. South Africa’s GDP isn’t all that impressive either. It ranks 28^th in the world, according to The Guardian, while China ranks 2^nd, Brazil 6^th, Russia 9^th, and India 10^th. The statistical comparison begs the question: Why was South Africa added to the list of the world’s powerful emerging countries?

 

According to The Economist, geographic inequity was the driving force behind the new addition. The original BRICs did not include any countries in Africa which currently is the world’s fastest growing continent. Africa’s gross domestic product (GDP) growth is averaging about 6 percent a year, a pace that is expected to remain constant for another decade. Over the decade ending in December 2012 Africa has seen:

 

• Foreign direct investment more than tripled to $46 billion
• A 30 percent increase in real income per person
• A 74 percent decline in HIV infections
• A 30 percent decline in malaria deaths
• Mobile communications grow: now there are three mobile phones for every four people
• A 10 percent increase in life expectancy
• Steeply falling infant mortality rates
• An increase in secondary school enrollment

Source: The Economist

 

Africa is changing so rapidly many believe the continent deserves to have a voice as an emerging region of the world. How to give it that voice? The solution was to add South Africa, the continent’s largest economy, to the BRICS.

 

Weekly Focus – Think About It

 

“A mind that is stretched by a new experience can never go back to its old dimensions.”

--Oliver Wendell Holmes, Supreme Court Justice

Value vs. Growth Investing (3/31/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-1.24	9.64	0.95	6.50	13.76	11.99	5.42
Large Cap	-0.78	9.34	1.16	6.33	13.27	11.62	4.63
Large Core	-0.07	12.95	2.56	9.89	18.95	13.19	6.31
Large Growth	-1.34	5.83	-0.02	3.28	5.66	11.22	5.45
Large Value	-0.87	9.77	1.08	6.30	16.05	10.60	1.98
Mid Cap	-2.21	10.66	0.45	7.25	15.05	13.00	7.03
Mid Core	-2.14	10.80	0.53	7.47	16.55	15.14	8.27
Mid Growth	-2.54	8.01	-1.11	4.98	8.92	12.24	5.22
Mid Value	-1.93	13.29	2.00	9.40	20.00	11.54	7.50
Small Cap	-3.09	9.78	0.15	6.04	15.22	12.41	8.38
Small Core	-2.60	10.38	0.94	6.79	15.20	11.87	7.69
Small Growth	-3.69	7.50	-1.52	4.33	10.79	12.75	7.53
Small Value	-3.05	11.29	0.86	6.83	19.69	12.52	9.81
US Core	-0.71	12.30	2.01	9.14	18.21	13.56	6.92
US Growth	-1.74	6.36	-0.34	3.68	6.61	11.61	5.59
US Value	-1.24	10.58	1.25	6.95	17.07	10.92	3.62

©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:

 

Need Home Improvement Motivation? Tax Break May Help

The “fiscal cliff” was averted, but what does this mean to homeowners? The answer: a lot. The bill, signed into law on January 2^nd, restricts tax rates from increasing, and, among other things, reinstates and extends tax credits for qualifying energy-efficient home upgrades done between January 1, 2012 and December 31, 2013. Homeowners can earn up to $500 in tax credits with the purchase and installation of qualifying products.

“Now is an ideal time to check off some of those home improvement ‘to-do’ items,” said Trey Hoffman, global product manager at Rinnai. “In addition to the tax break, homeowners reap the benefits of these energy-efficient upgrades for years, as these products can help reduce monthly utility bills.”

What qualifies as an energy-efficient upgrade? All products must meet certain efficiency criteria to qualify. A licensed contractor, builder, or remodeler can help homeowners select eligible products, such as:

§  Insulation materials, which help keep a house warm in the winter and cool in the summer, qualify if they meet 2009 International Energy Conservation Code requirements. The credit value is 10 percent of insulation material cost.

§  Exterior windows and skylights, if Energy Star-rated, can reduce homeowner energy bills seven to fifteen percent. A 10 percent credit can be earned when homeowners select Energy Star-qualified windows.

§  A tankless water heater can save homeowners up to 40 percent on their monthly energy bills. Qualifying tankless water heaters have an Energy Factor (EF) of at least .82. A $300 credit is available to homeowners opting for a more efficient way to heat water.

“Homeowners don’t always have to sacrifice luxury, aesthetics, and comfort when upgrading to energy-efficient products,” added Hoffman.

So, what documentation is needed to earn the tax credit? Homeowners need to file IRS Form 5695 with their taxes. They also need to keep receipts proving when the equipment was purchased, and a copy of the manufacturer’s certification. Accountants and tax advisors can provide additional guidance. If you’d like to talk to a tax professional, give me a call at 215-886-2122 and I’d be happy to refer you to a trusted partner.

 

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.

 

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