The financial markets last week felt somewhat like a roller coaster ride, as the week started off with large gains of nearly three percent across the three major US indexes on Monday. With the gains, the three major indexes made back more than half of the previous week’s losses in just the single day of trading. The move was prompted by analysts recommending the purchase of Bank of America as well as better-than-expected results announced by Lowe’s. The one day spike, however, was short lived with the markets giving the majority of the gain back over the following four day slump. The slump at the end of the week was caused, in part, by the rumblings on The Street that Standard and Poor’s was looking at the AAA sovereign credit rating of the US after they issued a statement warning Britain about their massive amounts of government spending and what impact it could have on their overall AAA rating. If the US were to see its AAA sovereign credit rating cut, it could have a detrimental impact on the already weak economy which depends heavily on foreign debt to correct the current economic state in the US. The US government is taking many of the same actions as Britain, and many Wall Street analysts view the warning to Britain as an indirect warning to the US. Throughout the course of the week, the dollar showed near-record weakness against many world currencies, continuing the slide that started at the beginning of May. We could see the first sign of any impact of the considered rating change over the next few weeks in the US Treasury auctions, at which, typically, foreign banks and governments load up on US treasuries.
One of the major wild cards for the markets in the coming weeks will be what actions are taken in dealing with North Korea as they have, yet again, tested a nuclear device and more missiles. As the world prepares to deal with these recent actions, the Obama administration will come under the limelight regarding foreign policy. The outcome could greatly impact many of the countries with which our economy is intertwined through trade or other economic methods. Another wild card on the geopolitical front is the ever present situation with Iran. We would see Iran’s main impact on the world markets in a spike upward in oil prices coming out of the region and the adverse affect such price increases could have on various market sectors.
With a less certain outlook of the current rally in worldwide stock markets, the price of gold moved up last week more than three percent, extending its weekly gains to five in a row, totaling nearly an eight percent increase in value. The upward move in gold has come as expected as investors have pulled a little of their money out of the markets with gains over the last few months and have moved into the relative safety of gold. The overall volatility of the S&P 500, as measured by the VIX index, dropped to a new low for 2009 during the week last week and then moved up sharply at the end of the week. The VIX reading now stands at the upper range of where it has traded historically from mid-2007 to mid-2008. While it is much lower than it has been in the recent past, it is still relatively high.
For the trading week ending 5/22/09, the returns in our portfolio models are as follows:
|
|
Last Week |
Year to Date |
|
S&P 500 (benchmark) |
0.53 % |
-0.52 % |
|
Aggressive Model |
1.70 % |
6.59 % |
|
Growth Model |
1.19 % |
5.21 % |
|
Moderate Model |
0.65 % |
2.61 % |
|
Stable Model |
0.81 % |
4.88 % |
We made only one change during the course of last week, and that was to trim back on one of our positions in financials. We sold the remaining holding of Profunds Financials (FNPIX) with a gain of more than 20 percent, although actual gain will vary based on investment model. We maintained our hedging position throughout the week, which proved to be very beneficial during the four lower trading days at the end of last week. We are actively looking for solid investments and have cash ready to invest should the opportunity arise. Simultaneously, we are attempting to preserve wealth and not become caught up in the chase for high returns.
Economic Wrap Up: The economic news releases for last week were few and far between, with two of the main releases pertaining to the housing market. On Tuesday the 19th both building permits and housing starts for the month of April were released. Both figures came in much poorer than expected, indicating that the housing market may still have room to move lower. The FOMC minutes from the most recent meeting, released last Wednesday, offered very little new data and insight. Initial jobless claims released last week were higher than expected but still lower than the previous week, somewhat muting the affect they had on the overall market.
This week more economic news will be released than last week, starting off after the long holiday weekend with the consumer confidence figures for the month of May and the Case Shiller home Price Index. With the releases of the housing information last week, it appears as though the housing market has continued to slide lower and we should see the effects in the figures released on Tuesday. On the other hand, consumer confidence expectations sit so low that the figure could come out better than expected if a large number of the 5,000 households surveyed for the calculation feel that the worst of the current economic cycle is in the past. With one of the two troubled auto makers in bankruptcy and the second heading into some form of bankruptcy protection, many US consumers may view that as the last shoe to drop on this whole situation. On Thursday the 28th New Home Sales figures are released, which could come in slightly better than expected if the consumer confidence number is higher than expected. On Friday the 29th we will see more GDP estimates for the first quarter of 2009, with the market expecting a negative 5.5. Overall, there are a few items this week that could create major market movements in either direction.
Financial Planning Tip: College Savings and Costs
A recently released survey indicates that most American parents have not reduced the amount they are saving for their children’s college educations as a result of the recession, but most are considering cheaper schools.
In the OppenheimerFunds Inc. survey released last week, sixty percent say they have not reduced their amount of college savings. But 57% say they are considering, or planning to consider, more affordable colleges because of the recession, and 82% are willing to send their child to a community college for two years before they attend a four-year school,
The nationwide survey of more than 1,000 parents of pre-college age kids showed 77% have saved less than $20,000 for their children’s college expenses; 62% have saved less than $10,000, and 43% have saved less than $5,000. Twelve percent have saved nothing at all.
Parents of children closest to college—those ages 15 to 18—are not necessarily stronger savers. More than half (55%) of these families have saved less than $10,000 for college, 40% have saved less than $5,000, and 13% have saved nothing at all.
At the same time, more than half (56%) of the parents surveyed think scholarship money will pay for a substantial portion of their kids’ college education. While many students receive some kind of grant aid, the amounts received and annual costs significantly differ.
According to the College Board, about two-thirds of all full-time undergraduates nationally receive grant aid. In 2008-09, aid in the form of grants and tax benefits averaged about $3,700 for in-state students at public four-year colleges, compared with an average annual total cost of $14,333, and aid averaged about $10,200 per student at private four-year colleges, compared with an average annual cost of $34,132, according to the 2008 Trends In College Pricing Report by The College Board. (The total costs include tuition and fees and room and board.)
Yet nearly 80% of parents say they want to cover 50% or more of their kids’ college expenses, and 24% say they want to cover the full amount. Among Americans who want to cover at least part of their kids’ college expenses, 66% say they want to do this because it is very important for their kids to graduate college with as little debt as possible. For 87%, a very important reason is that they would hate for their kids to have to drop out of college for financial reasons.
Of the respondents, 47% had a financial advisor, and 56% of those parents had discussed saving for college with their advisor in the last year.
Parents who have used 529 plans are twice as likely as those who have not (31% versus 16%) to have saved at least $20,000 for their kids’ college education, and are more likely to say they plan to cover 50% or more of their kids’ college expenses (90% versus 75%).
Please contact our office if you would like assistance in planning for college expenses.
