Weakness continued to be shown throughout the week last week as two of the three major broad market averages closed lower for the second week in a row, the first time we have seen back to back down weeks since the bear market rally started back in early March. The one major average which bucked the trend was the NASDAQ which managed to pull out a meager increase for the week thanks to a three day week ending rally of more than four percent. The broad indexes continue to trade in a fairly narrow trading range which was entered into at the beginning of May. Most of the stall in the rally can be attributed to uncertainty as to what the US consumer is going to make of the current situation and if they are going to buy into the scenario of the government being the white knight which saves the day. It seems that there is about an even balance between events and announcements that should be inherently good for the markets when compared to those which should have an adverse effect on it, thus leading to the daily sideways wondering we have been experiencing. One interesting thing of note in these markets is the lack of any real volume which is currently participating in market movements. There is typically a lull in trading volume as summer kicks off and many money managers take some time off, but this year the volume seems to be abnormally low of this time of year. When experiencing low volume there is an even more pronounced “herd” mentality every time something is released either positive or negative, thus leading to wide daily trading ranges. The VIX Index over the course of the low volume week last week decreased by almost 6 percent and is now safely into the upper level of the trading range seen prior to the market falling apart at the end of last year, meaning that the large daily movements in the market may be behind us and more normalized trading days could be to come.
On the international investment front one area of the world which has recently seen very nice returns could be in for a pretty choppy ride. With the military coup that took place on Sunday in Honduras the overall stability of the region could be in jeopardy especially with Venezuela, saber rattling about military action in the region. We are watching Latin America very closely to see if there is going to be an investment opportunity in the future of which we can take advantage. During the week last week the IMF was busy making many statements about a variety of countries as to the outlook which they expect for the rest of this year and 2010. Australia was one country which the IMF sees as performing better than expected when they released their last report in April, with revised expectations for GDP to be a negative .5 percent for 2009 when compared to the previously thought negative 1.4 percent. France also fell on the good graces of the IMF with the announcement that they think an economic recovery will begin to take place during early 2010. Both of the above mentioned countries are of particular interested to us as having a strong investment possibility because we could both benefit from an economic recovery in the counties as well as the probable continued decline in the US dollar. Weakness in the US dollar is still a theme which we see playing out for the remainder of the year and into 2010, in large part because of the amount of dollars which the US government has flooded the system with during their economic stimulus activity. The announcement last week by the Fed saying that they would not currently be growing their program under which the government can buy US treasuries, seems to have temporarily lessened the downward pressure which is on the US dollar, but in the long run there is still too many dollars in the system to keep both the currency and inflation rate where they are.
For the trading week ending 6/26/09, the returns in our portfolio models were as follows:
Last Week
Year to Date
S&P 500 WD (benchmark)
-0.20 %
3.13 %
Aggressive Model
0.19 %
3.14 %
Growth Model
-0.10 %
2.87 %
Moderate Model
-0.33 %
0.95 %
Stable Model
-0.11 %
2.72 %
We currently remain in a very defensive position holding large positions in cash and or hedging positions to offset some of the market exposure which is currently in our models. We did make a move into one sector which we have been following for quite some time, that being pharmaceuticals (PHPIX). We used an indexed style mutual fund because it gives us the ability to trade back out without penalty should the sector move against us and we want to be out of the position. We continue to look at various sectors of the market for any signs of strength, but can find very few investments that do not look like the rally since the beginning of March has stalled out. Many of the recent industry and sector leaders are now lagging behind the broad indexes which is either a sign of new leadership in the rally or a rally that has run its course.
Economic Wrap Up: Last week the most anticipated and watched economic news release was the fed’s decision to keep interest rates in the current range. With this decision being what most people working on Wall Street thought was going to happen it was a relatively non market moving announcement. One announcement last week which was market moving was the durable goods orders for the month of May which was released on Wednesday the 24th to show an increase in orders by 1.8 percent. The increase of 1.8 percent was significantly over market expectations, the market was looking for a decline of .9 percent, and is seen by some as a possible signal that manufacturing is going to begin to pick up in the US during the second half of 2009. The final GDP figures for the first quarter of 2009 were also released last week and came in slightly better than expected at negative 5.5 percent compared to the expected negative 5.7 percent. Wrapping up the week on Friday the 26th Personal Income was shown to have risen by 1.4 percent during the month of May while the consensus on the street was for an increase of .3 percent, Personal Spending however did not come in better than expected. With income coming in better than expected and spending coming in as expected it lends one to wonder about if the confident US consumer that has their income rising really believes that things are going to be turning around for the better. If this was actually the thought then one would think that spending would also be increasing, which is something that we have not seen so far during this market rally.
This shortened trading week has a full weeks of economic news released packed in starting with consumer confidence and the home price indexes being released on Tuesday. As I have stated before the consumer confidence figures have little meaning if there is not a corresponding move in the consumer spending figures. Consumers can be as confident as they have ever been but if they are not spending any money the economic system is not going to work as it has in the past. On July 1st construction spending (May), pending home sales (May) and automotive sales (June) are all released. The construction spending and pending home sales figures could clean a little insight in the housing sector which will probably show that it is in fact bottoming out, while the automotive sales figures will probably show that more people have purchased cars than expected in part due to all of the gimmicks that dealerships are currently running. Thursday, the last trading day of the week, holds what could be the largest of the economic news releases this week with the unemployment rate for the month of June being released. Expectations are for the rate to be 9.6 percent up from the previous reading of 9.4 percent. If the rate is shown to be over the psychological 10 percent barrier it could have very adverse effects on the overall markets, on the other hand if the rate comes in better than expected it could add fuel to the rally which for the moment appears to have stalled.
Weakness continued to be shown throughout the week last week as two of the three major broad market averages closed lower for the second week in a row, the first time we have seen back to back down weeks since the bear market rally started back in early March. The one major average which bucked the trend was the NASDAQ which managed to pull out a meager increase for the week thanks to a three day week ending rally of more than four percent. The broad indexes continue to trade in a fairly narrow trading range which was entered into at the beginning of May. Most of the stall in the rally can be attributed to uncertainty as to what the US consumer is going to make of the current situation and if they are going to buy into the scenario of the government being the white knight which saves the day. It seems that there is about an even balance between events and announcements that should be inherently good for the markets when compared to those which should have an adverse effect on it, thus leading to the daily sideways wondering we have been experiencing. One interesting thing of note in these markets is the lack of any real volume which is currently participating in market movements. There is typically a lull in trading volume as summer kicks off and many money managers take some time off, but this year the volume seems to be abnormally low of this time of year. When experiencing low volume there is an even more pronounced “herd” mentality every time something is released either positive or negative, thus leading to wide daily trading ranges. The VIX Index over the course of the low volume week last week decreased by almost 6 percent and is now safely into the upper level of the trading range seen prior to the market falling apart at the end of last year, meaning that the large daily movements in the market may be behind us and more normalized trading days could be to come.
On the international investment front one area of the world which has recently seen very nice returns could be in for a pretty choppy ride. With the military coup that took place on Sunday in Honduras the overall stability of the region could be in jeopardy especially with Venezuela, saber rattling about military action in the region. We are watching Latin America very closely to see if there is going to be an investment opportunity in the future of which we can take advantage. During the week last week the IMF was busy making many statements about a variety of countries as to the outlook which they expect for the rest of this year and 2010. Australia was one country which the IMF sees as performing better than expected when they released their last report in April, with revised expectations for GDP to be a negative .5 percent for 2009 when compared to the previously thought negative 1.4 percent. France also fell on the good graces of the IMF with the announcement that they think an economic recovery will begin to take place during early 2010. Both of the above mentioned countries are of particular interested to us as having a strong investment possibility because we could both benefit from an economic recovery in the counties as well as the probable continued decline in the US dollar. Weakness in the US dollar is still a theme which we see playing out for the remainder of the year and into 2010, in large part because of the amount of dollars which the US government has flooded the system with during their economic stimulus activity. The announcement last week by the Fed saying that they would not currently be growing their program under which the government can buy US treasuries, seems to have temporarily lessened the downward pressure which is on the US dollar, but in the long run there is still too many dollars in the system to keep both the currency and inflation rate where they are.
For the trading week ending 6/26/09, the returns in our portfolio models were as follows:
Year to Date
S&P 500 WD (benchmark)
-0.20 %
3.13 %
Aggressive Model
0.19 %
3.14 %
Growth Model
-0.10 %
2.87 %
Moderate Model
-0.33 %
0.95 %
Stable Model
-0.11 %
2.72 %
We currently remain in a very defensive position holding large positions in cash and or hedging positions to offset some of the market exposure which is currently in our models. We did make a move into one sector which we have been following for quite some time, that being pharmaceuticals (PHPIX). We used an indexed style mutual fund because it gives us the ability to trade back out without penalty should the sector move against us and we want to be out of the position. We continue to look at various sectors of the market for any signs of strength, but can find very few investments that do not look like the rally since the beginning of March has stalled out. Many of the recent industry and sector leaders are now lagging behind the broad indexes which is either a sign of new leadership in the rally or a rally that has run its course.
Economic Wrap Up: Last week the most anticipated and watched economic news release was the fed’s decision to keep interest rates in the current range. With this decision being what most people working on Wall Street thought was going to happen it was a relatively non market moving announcement. One announcement last week which was market moving was the durable goods orders for the month of May which was released on Wednesday the 24th to show an increase in orders by 1.8 percent. The increase of 1.8 percent was significantly over market expectations, the market was looking for a decline of .9 percent, and is seen by some as a possible signal that manufacturing is going to begin to pick up in the US during the second half of 2009. The final GDP figures for the first quarter of 2009 were also released last week and came in slightly better than expected at negative 5.5 percent compared to the expected negative 5.7 percent. Wrapping up the week on Friday the 26th Personal Income was shown to have risen by 1.4 percent during the month of May while the consensus on the street was for an increase of .3 percent, Personal Spending however did not come in better than expected. With income coming in better than expected and spending coming in as expected it lends one to wonder about if the confident US consumer that has their income rising really believes that things are going to be turning around for the better. If this was actually the thought then one would think that spending would also be increasing, which is something that we have not seen so far during this market rally.
This shortened trading week has a full weeks of economic news released packed in starting with consumer confidence and the home price indexes being released on Tuesday. As I have stated before the consumer confidence figures have little meaning if there is not a corresponding move in the consumer spending figures. Consumers can be as confident as they have ever been but if they are not spending any money the economic system is not going to work as it has in the past. On July 1st construction spending (May), pending home sales (May) and automotive sales (June) are all released. The construction spending and pending home sales figures could clean a little insight in the housing sector which will probably show that it is in fact bottoming out, while the automotive sales figures will probably show that more people have purchased cars than expected in part due to all of the gimmicks that dealerships are currently running. Thursday, the last trading day of the week, holds what could be the largest of the economic news releases this week with the unemployment rate for the month of June being released. Expectations are for the rate to be 9.6 percent up from the previous reading of 9.4 percent. If the rate is shown to be over the psychological 10 percent barrier it could have very adverse effects on the overall markets, on the other hand if the rate comes in better than expected it could add fuel to the rally which for the moment appears to have stalled.
Posted in Weekly Commentary