Schwartz Financial Weekly Commentary 7/1/13

Schwartz Financial Weekly Market Commentary

July 1, 2013

 

The Markets

Soothing words from Federal Reserve Bank officials helped settle investors’ fears last week, and U.S. stock markets moved higher. The Dow Jones Industrials Average was up 0.7 percent, the Standard & Poor’s 500 gained 0.9 percent, and the NASDAQ rose by 1.4 percent.

 

Markets were more stable during the week, and the CBOE Volatility Index (VIX), which gauges investors’ fear by measuring volatility expectations for the coming 30-day period, fell by 2 percent to finish the week just below 17.

 

Economic data was mixed. On the negative side, U.S. Gross Domestic Product (GDP) growth from January through March was revised downward from 2.4 percent to 1.8 percent annually. On the positive side, U.S. home prices gained more than 12 percent in April, which was the biggest year-to-year gain since 2006. Home sales for May also were strong, reaching a level last seen six years ago, according to the Denver Post.

 

Gold suffered another difficult week. Some believe the sell-off is the result of changing expectations as fear that quantitative easing might lead to hyperinflation, systemic collapse of the financial system, or devaluation of currency have begun to ease.

 

U.S. stock markets delivered positive performance for the quarter, as well. The Dow gained 2.3 percent, the S&P 500 was up 2.4 percent, and the NASDAQ rose by 4.2 percent. Year-to-date, the S&P 500 gained more than 12 percent during the first six months of 2013. That was its best first half of the year performance in more than a decade, according to Yahoo! Finance.

 

This week, some experts foresee the possibility that Fourth of July fireworks could be followed by a new round of market volatility as investors and analysts try to use the June employment report to predict the timing of monetary policy changes.

 

Data as of 6/28/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.9%	12.6%	20.9%	14.3%	4.7%	5.1%
10-year Treasury Note (Yield Only)	2.5	N/A	1.6	3.0	4.0	3.5
Gold (per ounce)	-8.0	-30.0	-23.5	-1.9	5.1	13.2
DJ-UBS Commodity Index	-2.2	-10.5	-4.6	-0.3	-11.8	0.7
DJ Equity All REIT TR Index	4.0	5.6	12.7	16.3	7.6	11.0

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.

 

they say actions speak louder than words, but that doesn’t appear to be the case when it comes to Federal Reserve monetary policy. For some time, the Fed has been communicating its intention to gradually cut back its bond purchasing program (a.k.a. quantitative easing) while keeping the target fed funds rate steady. The target fed funds rate is the interest rate at which banks borrow money from each other overnight. The Fed has not taken action yet, but its words have caused nominal bond yields to rise and inflation expectations to fall. Typically, these changes are associated with tightening monetary policy.

 

The Fed’s words also triggered significant market volatility. An article in The Economist suggested:

 

“Fed officials are doubtless annoyed by the market’s skittish reaction to the idea of tapering. In its view a more leisurely pace of buying does not amount to tightening. Fed economists reckon the size of the central bank’s balance-sheet is what matters most: so long as its asset pile is growing, policy is getting looser. By the Fed’s estimates, halving the monthly rate of asset purchases would be equivalent to trimming the federal-funds rate by five basis points per month instead of ten.”

 

The gap between the Fed’s perceptions and the markets’ response has been significant, and investors and analysts are scrambling to interpret the economic tea leaves. Researchers at Barclays Capital, whose work was cited in The Economist, have tried to determine how tapering may affect investment assets. Since stock markets in emerging countries and high-yield bond markets in the United States and Europe responded the most to the Fed’s quantitative easing program, experts anticipate these markets also may respond the most strongly when tapering begins.

 

Weekly Focus – Think About It

 

“Fear comes from uncertainty. When we are absolutely certain, whether of our worth or worthlessness, we are almost impervious to fear.

 

--William Congreve, English playwright and poet

Value vs. Growth Investing (6/28/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	1.13	14.04	-1.32	2.72	21.26	18.79	7.36
Large Cap	0.99	13.61	-1.25	3.09	20.01	18.54	6.71
Large Core	0.78	18.33	-0.71	4.69	26.11	20.14	8.81
Large Growth	1.34	8.65	-1.91	1.28	13.42	18.17	5.96
Large Value	0.85	14.60	-1.07	3.49	21.47	17.56	5.30
Mid Cap	1.83	15.61	-1.22	2.17	25.56	19.58	8.48
Mid Core	1.48	13.45	-2.01	0.20	23.27	21.06	9.22
Mid Growth	1.86	13.06	-1.44	2.02	20.67	18.22	5.58
Mid Value	2.13	20.43	-0.25	4.25	33.17	19.29	10.75
Small Cap	1.91	15.39	-0.96	1.87	23.95	19.34	10.42
Small Core	2.05	15.45	-1.12	1.88	25.09	18.41	9.17
Small Growth	1.66	15.78	0.25	3.73	21.75	20.51	9.09
Small Value	2.01	15.00	-1.90	0.18	25.08	19.11	13.13
US Core	1.01	17.07	-1.02	3.51	25.39	20.24	9.06
US Growth	1.19	9.66	-1.94	1.31	15.04	18.29	6.08
US Value	1.19	15.79	-0.96	3.42	24.01	18.01	6.94

 ©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:

A Ruling to Remember

Hillman v. Maretta

 

Warren Hillman passed away at the age of 66 with a life insurance policy worth nearly $125,000. Over a five-year period, his ex-wife and his widow fought over the money. Recently, the Supreme Court decided that Hillman's ex-wife, Judy Maretta, was entitled to the entire policy.

 

Why did the court rule in favor of a woman who Hillman divorced 10 years before he died?

 

Hillman made a simple mistake that proved very costly. Like so many unfortunate souls before him, Hillman did not change the beneficiary designation for a life insurance policy when he divorced Maretta, or after his

subsequent marriage to Jacqueline Hillman in 2002, or before his death.  Now, some states, like Hillman's home state of Virginia, have laws protecting such a massive oversight.

The law provides that divorce revokes a beneficiary designation under a life insurance policy.

 

So what's the deal? Hillman's policy was part of a life insurance program for federal employees governed by
the Federal Employees' Group Life Insurance Act of 1954. That law mandates that the proceeds on death are paid according to the beneficiary designation. The Supreme Court found that the federal law trumped the Virginia law.

 

Lesson to Learn: Keep beneficiary forms up to date, especially after big life events.

 

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.

 

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