April is now behind us with the markets locking in sizeable gains, which has not happened for quite some time. It was nice to finally have a month of strong gains, but now the question about the rally’s sustainability looms even larger than before. If the worst of the current economic cycle is behind us and much of the government intervention starts to have the desired effect, then the rally could certainly continue on. But the problems that put the US in the current situation did not occur overnight, nor will they likely be fixed overnight.
One of the major events last week was the announcement that Chrysler will go into bankruptcy. The announcement made by President Obama in a press conference came as little surprise to the stock markets and the general public because it was seen as imminent for the past few weeks. How long the bankruptcy will take and how the company will look once it emerges from chapter 11 is unclear at this time; the large size of this filing places it in uncharted waters. Fiat looks like it will still partner up with Chrysler in some manner but the terms of the deal are not yet released.
The big news event in the coming week occurs on Monday with the release of the banking stress test results. Most likely, the results will show that a few of the major banks are in trouble as far as their capitalization rates, but some sort of plan will, undoubtedly, come out at the same time in order to quell any fears about the banks. Also with the results, the government could outline some sort of new oversight in order to try to reassure investors and the public that this sort of capitalization issue will not arise in the future. Ultimately, the government is not in a position to let any of the major banks fail, and will lend to them as a last resort should the banks try other avenues in raising capital without success.
The overall market volatility as measured by the VIX index fell a very slight amount over the course of last week, but declined by more than 16 percent over the month of April. This decline in the VIX is a sign that widely oscillating market days may be behind us, at least for the near future. Gold prices fell by approximately three percent over the course of the previous month as investors became more comfortable with the risk level in the equity markets, and moved from the safety of gold into equities. Oil stayed in a very tight trading range compared to how much it has swung in recent months, increasing by five percent during the month of April.
For the trading week ending 5/1/09, the returns in our portfolio models are as follows:
Last Week
April 2009
Year to Date
S&P 500 (benchmark)
1.37 %
9.69 %
-1.76 %
Aggressive Model
0.23 %
8.19 %
5.97 %
Growth Model
0.22 %
6.50 %
4.69 %
Moderate Model
0.50%
3.36 %
2.21 %
Stable Model
-0.04 %
7.20 %
4.54 %
We made one change to our models during the course of last week and that was to move into the Rydex Internet Fund (RYIIX) based on the strength the sector is showing relative to the rest of the market. We used the Rydex fund because it is a no load, no transaction fee fund on the Schwab platform and also allows for trading out quickly should the group start to falter and give us the signal to sell. We took our first of three steps moving into a full position and will take the subsequent steps in the future if the sector and fund continue to show strength.
Economic Wrap Up: Last week was an exciting week for economic news with many major releases throughout the week. The main one was the advanced figure for GDP for the first quarter of 2009, which showed a contraction of 6.1 percent during the first quarter. This was much higher than the 4 to 4.5 percent range that many economists expected, but the market, to much surprise, moved upward decidedly on the report. The reason for the upward movement of the major indexes is debatable. Some people say that it was because inventory numbers fell so much during the first quarter that manufacturing will have to pick up soon in order to resupply the inventories. Others say that the markets increased in value because the negative 6.1 percent was so bad that the worst of this downturn must have happened during the first quarter of 2009, and will start a recovery during the second quarter that will run through the end of the year. We are uncertain why the markets moved upward on Wednesday, and can see truth in both of the above arguments. One thing is for certain, if we are going to make it to an annual GDP rate of zero or above for 2009, our economy is really going to have to kick in to high gear to pull out of the hole in which the first quarter started.
Another economic news release from last week was the consumer confidence number for the month of April which showed a very surprising upward movement, coming in at 39.2 while the market expected a reading near 29.5 and the previous month’s figure was 26.9. This jump in consumer confidence is a very good sign, but is only one indicator and will mean much more if US consumers start to spend money according to how confident they feel. The housing price index for the month of February was released on 4/28 and showed a little improvement over the previous month’s reading, indicating that the housing market may, in fact, be leveling out from the very steep downward trend of the recent past. The FOMC also released their most recent interest rate decision last week, deciding to leave rates in their current range between zero and .25 percent, as was expected. Personal income and spending, both released last Thursday, came in very close to expectations and, thus, affected the overall markets very little.
This coming week is another very full week for economic news releases, starting off with construction spending and pending home sales on Monday. On Thursday the 7th the productivity figures for first quarter 2009 will be released as well as consumer credit for the month of March. The unemployment rate for the month of April rounds up the week on Friday the 8th along with wholesale inventory figures for the month of March. The wholesale inventory figures could prove to be a very important number because many people attributed the bad GDP figure released last week to the massive decline in inventories.
Financial Planning Tip: Teens and Money – Tips for Parents
Most parents intend to educate their teens about money, but with today’s hectic schedules many may not follow through.
A USAA study found that 79 percent of college-bound freshmen have not received budgeting or spending advice from their parents or anyone else.
Parents and Money
53% agree that their child thinks “money grows on trees.”
57% put no restrictions on how their child can spend the money they are given.
76% said their high school student does not have a budget.
88% feel it’s important to monitor their child’s spending and guide their money use.
College-bound Teens and Money
27% plan to have their own credit card.
21% anticipate spending between $200 and $500 a month on clothes and entertainment.
23% believe they can spend up to $500 without their parents’ approval.
Talking to Teens about Money
Needs vs. wants: Teens need to understand the difference between the two. Car insurance and school-related costs come before movies and entertainment.
Create a budget: Sit down together to discuss how money will be provided, earned and spent. Make sure the budget is realistic and includes some fun money.
Share responsibility: Teens should have some financial responsibility to help form healthy financial habits, such as paying for car insurance or a credit card.
Credit Cards
Explain how they work: After high school, teens are flooded with credit card offers. They need to understand the rules and the consequences.
Interest: Talk to them about how quickly interest can grow if they keep a balance.
Pay on time: Late payment fees can add up quickly.
Future credit: Poor debt management can affect their credit score and affect their credit rating — both affect the interest rates they’ll pay on credit cards, car loans, home loans and more.
Start small: You may consider giving high-school seniors a low limit credit card so they can get in the habit of paying it in full each month. It is good for your children to learn while you’re there to help, instead of later down the road.
Financial Tools for Teens
Joint accounts: Parents should consider joint banking accounts to ensure money is managed properly. Online accounts allow easier fund transfers.
Pre-paid spending cards: These safeguard against overspending but allow teens to manage their own money. Parents also can fund cards instantly online.
Did you know that many of our clients have brought their teens in to meet with us? We are happy to set up a meeting for you and your teen to discuss financial planning and investments as well as college planning concerns. Please call our office for an appointment if this would be of interest to your family.
April is now behind us with the markets locking in sizeable gains, which has not happened for quite some time. It was nice to finally have a month of strong gains, but now the question about the rally’s sustainability looms even larger than before. If the worst of the current economic cycle is behind us and much of the government intervention starts to have the desired effect, then the rally could certainly continue on. But the problems that put the US in the current situation did not occur overnight, nor will they likely be fixed overnight.
One of the major events last week was the announcement that Chrysler will go into bankruptcy. The announcement made by President Obama in a press conference came as little surprise to the stock markets and the general public because it was seen as imminent for the past few weeks. How long the bankruptcy will take and how the company will look once it emerges from chapter 11 is unclear at this time; the large size of this filing places it in uncharted waters. Fiat looks like it will still partner up with Chrysler in some manner but the terms of the deal are not yet released.
The big news event in the coming week occurs on Monday with the release of the banking stress test results. Most likely, the results will show that a few of the major banks are in trouble as far as their capitalization rates, but some sort of plan will, undoubtedly, come out at the same time in order to quell any fears about the banks. Also with the results, the government could outline some sort of new oversight in order to try to reassure investors and the public that this sort of capitalization issue will not arise in the future. Ultimately, the government is not in a position to let any of the major banks fail, and will lend to them as a last resort should the banks try other avenues in raising capital without success.
The overall market volatility as measured by the VIX index fell a very slight amount over the course of last week, but declined by more than 16 percent over the month of April. This decline in the VIX is a sign that widely oscillating market days may be behind us, at least for the near future. Gold prices fell by approximately three percent over the course of the previous month as investors became more comfortable with the risk level in the equity markets, and moved from the safety of gold into equities. Oil stayed in a very tight trading range compared to how much it has swung in recent months, increasing by five percent during the month of April.
For the trading week ending 5/1/09, the returns in our portfolio models are as follows:
April 2009
Year to Date
S&P 500 (benchmark)
1.37 %
9.69 %
-1.76 %
Aggressive Model
0.23 %
8.19 %
5.97 %
Growth Model
0.22 %
6.50 %
4.69 %
Moderate Model
0.50%
3.36 %
2.21 %
Stable Model
-0.04 %
7.20 %
4.54 %
We made one change to our models during the course of last week and that was to move into the Rydex Internet Fund (RYIIX) based on the strength the sector is showing relative to the rest of the market. We used the Rydex fund because it is a no load, no transaction fee fund on the Schwab platform and also allows for trading out quickly should the group start to falter and give us the signal to sell. We took our first of three steps moving into a full position and will take the subsequent steps in the future if the sector and fund continue to show strength.
Economic Wrap Up: Last week was an exciting week for economic news with many major releases throughout the week. The main one was the advanced figure for GDP for the first quarter of 2009, which showed a contraction of 6.1 percent during the first quarter. This was much higher than the 4 to 4.5 percent range that many economists expected, but the market, to much surprise, moved upward decidedly on the report. The reason for the upward movement of the major indexes is debatable. Some people say that it was because inventory numbers fell so much during the first quarter that manufacturing will have to pick up soon in order to resupply the inventories. Others say that the markets increased in value because the negative 6.1 percent was so bad that the worst of this downturn must have happened during the first quarter of 2009, and will start a recovery during the second quarter that will run through the end of the year. We are uncertain why the markets moved upward on Wednesday, and can see truth in both of the above arguments. One thing is for certain, if we are going to make it to an annual GDP rate of zero or above for 2009, our economy is really going to have to kick in to high gear to pull out of the hole in which the first quarter started.
Another economic news release from last week was the consumer confidence number for the month of April which showed a very surprising upward movement, coming in at 39.2 while the market expected a reading near 29.5 and the previous month’s figure was 26.9. This jump in consumer confidence is a very good sign, but is only one indicator and will mean much more if US consumers start to spend money according to how confident they feel. The housing price index for the month of February was released on 4/28 and showed a little improvement over the previous month’s reading, indicating that the housing market may, in fact, be leveling out from the very steep downward trend of the recent past. The FOMC also released their most recent interest rate decision last week, deciding to leave rates in their current range between zero and .25 percent, as was expected. Personal income and spending, both released last Thursday, came in very close to expectations and, thus, affected the overall markets very little.
This coming week is another very full week for economic news releases, starting off with construction spending and pending home sales on Monday. On Thursday the 7th the productivity figures for first quarter 2009 will be released as well as consumer credit for the month of March. The unemployment rate for the month of April rounds up the week on Friday the 8th along with wholesale inventory figures for the month of March. The wholesale inventory figures could prove to be a very important number because many people attributed the bad GDP figure released last week to the massive decline in inventories.
Financial Planning Tip: Teens and Money – Tips for Parents
Most parents intend to educate their teens about money, but with today’s hectic schedules many may not follow through.
A USAA study found that 79 percent of college-bound freshmen have not received budgeting or spending advice from their parents or anyone else.
Parents and Money
College-bound Teens and Money
Talking to Teens about Money
Credit Cards
Financial Tools for Teens
Source: www.usaa.com
Did you know that many of our clients have brought their teens in to meet with us? We are happy to set up a meeting for you and your teen to discuss financial planning and investments as well as college planning concerns. Please call our office for an appointment if this would be of interest to your family.
Posted in Weekly Commentary