Monthly Archives: July 2013

Singing the Earnings Song…

Weekly Market Commentary

July 22, 2013 

The Markets

Singing the earnings song…

Each year, in January, April, July, and October, most publicly-traded companies announce their corporate earnings results. These announcements can have a dramatic effect on companies’ share prices – and markets – especially when companies don’t meet analysts’ expectations.

The way a company’s share price moves after an earnings announcement can strike a discordant note. For instance, a company can have a great quarter, but if it earns a few pennies per share less than expected, its share price may tumble. Likewise, a company can be in dire straits, but if it produces a few cents more than expected, its share price may climb.

Last week’s earnings song was a bit melancholy. By the end of the week, about one-fifth of the companies in the Standard & Poor’s 500 Index had submitted their reports and earnings were on track to grow by about 1.5 percent year-to-year. That’s a bit lower than the 4.1 percent earnings growth analysts had expected, but it was in positive territory.

Unfortunately, as The Wall Street Journal pointed out, financial companies have exceptionally easy year-to-year comparisons. When they were pulled out of the mix, earnings hit a low note: down by almost 3 percent from last year, according to FactSet. That’s worse than analysts expected at the start of the quarter.

Earnings were weak relative to expectations, but the S&P 500 still finished higher for the week.  That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program.

 

Data as of 7/12/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.7%

18.6%

22.9%

16.5%

6.1%

5.6%

10-year Treasury Note (Yield Only)

2.5

N/A

1.5

3.0

4.1

4.2

Gold (per ounce)

1.3

-23.5

-18.2

3.1

6.2

14.0

DJ-UBS Commodity Index

0.9

-6.8

-11.1

0.7

-9.5

1.1

DJ Equity All REIT TR Index

1.2

11.0

13.9

18.9

8.3

11.3

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 been an innovation in measuring innovation. Innovation is one of those things. It’s hard to fully describe, but it can be awfully important to countries and economies.

In recent years, there have been some remarkable innovations, such as car sharing and the Oakland A’s use of sabermetrics; and some less remarkable ones, such as airline baggage fees and the detachable dog sack (which allowed Fido to ride in a cloth carrier attached to the outside of the car).

In March, panelists at the Wharton Economic Summit 2013 discussed the concept of innovation. Although they didn’t all define it in the same way, they suggested innovation is using something new or known in a different way, different time, or a different place; essential for companies to grow; useful; transformative; an approach that addresses a major want or need; not always easy to spot.

It’s clear innovation means different things to different people. Cornell University, INSEAD, and the World Intellectual Property Organization, which collaborate on the Global Innovation Index, said their benchmark, “recognizes the key role of innovation as a driver of economic growth and prosperity, and adopts an inclusive, horizontal vision of innovation applicable to both developed and emerging economies.”

They refined the index for 2013. According to The Economist:

“Instead of objectively counting the inputs and outputs, it relies on nuance. For example, rather than ranking overall education, it looks at the top three universities, since elite institutions may be more important than the average. Instead of counting each patent, it tracks only those filed in at least three countries, which suggests it is a more valuable technology. And, rather than look at scientific journal articles en masse, the index includes how often they are actually cited.”

So, using these innovative metrics, which countries rank the highest in innovation? Among rich countries, the United States, Britain, and Germany are one, two, and three. In middle income countries, China, Brazil, and Russia take top honors.

Weekly Focus – Think About I 

“Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.”

Siddhartha Gautama, also known as Buddha

 

Best regards,

John Raudat

Canoga Wealth Management LLC

 

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 e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial Member FINRA/SIPC.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                                     

* 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 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.

 

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://www.investopedia.com/terms/e/earningsseason.asp

http://www.investopedia.com/financial-edge/1010/4-things-to-know-about-earnings-season.aspx

http://blogs.wsj.com/moneybeat/2013/07/19/morning-moneybeat-whats-that-you-said-about-a-strong-earnings-season/

http://money.cnn.com/2013/07/17/investing/premarkets/

http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf (Page 6)

http://knowledge.wharton.upenn.edu/article.cfm?articleid=3242

http://www.foxnews.com/story/2009/03/19/century-disasters-top-10-worst-inventions-in-history/

http://www.globalinnovationindex.org/content.aspx?page=GII-Home (Click on the Quick Link “GII 2013 Report,” then “Download the GII 2013 Report here” and go to page V)

http://www.economist.com/blogs/graphicdetail/2013/07/daily-chart-14

http://www.brainyquote.com/quotes/authors/b/buddha.html#FspDAtGzW65EdVdm.99

 

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New Highs

Weekly Market Commentary

July 15, 2013 

The Markets

 One of these things is not like the other… If you find yourself humming that old Sesame Street standard when you think about financial markets and world economies, you’re probably not alone.

 To the consternation of many, the Dow Jones Industrials Average and the Standard & Poor’s 500 Index rocketed to new highs last week just as the International Monetary Fund (IMF) cut its global economic growth forecast for 2013 and 2014.

Many in the media pointed fingers and announced, “That’s the problem right there!” Of course, the fingers were pointing at Ben Bernanke and the Federal Reserve which continued to dither about Quantitative Easing (QE) last week. While it may feel good to lay blame, the Fed is just one tree in the forest of market volatility and economic growth.

Let’s take a look at another section of the forest: emerging markets. They are expected to power 60 percent of the world’s economic activity by 2030. Yet, just last week, China’s exports slumped, and Brazilian and Indonesian central banks raised interest rates (which generally slows growth). Turkey’s central bank may do the same next week. Is slowing growth in emerging markets the Fed’s fault?

While higher rates in the U.S. may hurt emerging markets, many of those countries have problems of their own, including infrastructure bottlenecks and excessive credit expansion. Last March, the Financial Times quoted Deutsche Bank strategist John-Paul Smith who wrote:

“We believe that 2013 will mark the year when economists and investors focus on the underlying imbalances within the Chinese economy and, accordingly, reduce their expectations of sustainable growth over the medium term. The deterioration in the perception of China is likely to have a very disruptive effect on (global emerging market) equities…”

Smith’s forecast proved out. Early last week, the International Monetary Fund (IMF) lowered expectations for China’s growth to the high-seven percent range.

Of course, it’s not easy to predict the future. Irrefutable evidence of that arrived a few days after the IMF’s report when Lou Jiwei, China’s Minister of Finance, said his country’s growth rate could fall to 7.0 percent or even lower. Economists gasped.

China’s official growth target (set by the National People’s Congress) is 7.5 percent, not 7.0 percent or lower. According to The Wall Street Journal, “Such a sharp downshift in China’s growth would send ripples around the world economy, hitting everything from iron-ore demand in Australia to sales of luxury handbags in Hong Kong stores.”

Data as of 7/12/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

3.0%

17.8%

25.9%

16.0%

6.7%

5.3%

10-year Treasury Note (Yield Only)

2.6

N/A

1.5

3.1

3.9

3.7

Gold (per ounce)

5.5

-24.4

-17.8

2.0

5.7

14.0

DJ-UBS Commodity Index

2.3

-7.6

-7.4

0.7

-11.0

1.0

DJ Equity All REIT TR Index

3.8

9.6

13.2

18.3

9.8

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.

In america, people are still pulling themselves up by their boot straps. Three-fourths of the folks who participated in the 2013 U.S. Trust Insights on Wealth and Worth (all of whom have $3 million or more in investable assets) made their money the old fashioned way. They worked, owned businesses, and/or invested.

Most believe they’re financially secure and feel confident about the future. While that proved true for many aspects of financial planning, the study uncovered some unrecognized risks, many of which have been created by a volatile investment environment and changing tax laws. They include:

  • Incomplete retirement planning. Although the vast majority of those surveyed are very confident about having the income they need during retirement, many have overlooked factors which affect income and assets such as lifestyle expectations, out-of-pocket healthcare expenses, long-term care costs, and others.
  • Financial support for extended family. Almost one-half of those surveyed provide significant support to members of their extended families (including parents, in-laws, siblings, and grown children). However, the majority have not included that fact in their financial plans.
  • Conflicted emotions about investing. The majority of survey participants said growing assets is more important than preserving them today; however, they also said lowering risk is a higher priority than pursuing higher returns.
  • Tax law changes. A majority of wealthy people do not understand the ways in which tax law changes may affect their income, investments, or estates. Few understand the tax strategies which may be available to them.

Weekly Focus – Think About It

“Tell me and I forget. Teach me and I remember. Involve me and I learn.”

Benjamin Franklin, inventor and statesman

 

Best regards,

John Raudat

Canoga Wealth Management LLC

 

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 e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                                     

* 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 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.

 

 

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://finance.yahoo.com/news/bulls-crosshairs-bernanke-earnings-020139063.html

http://www.imf.org/external/pubs/ft/survey/so/2013/NEW070913A.htm

http://blogs.barrons.com/emergingmarketsdaily/2013/07/12/the-emerging-market-power-rankings-thank-heavens-for-ben-bernanke/?mod=BOL_hpp_blog_stw

http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/indonesia-hikes-interest-rates-as-nations-scramble-over-market-rout/article12508211/

http://blogs.ft.com/beyond-brics/2013/03/01/deutsche-bear-em-stocks-to-drop-10-15/#axzz2YvzcWUrQ

http://online.wsj.com/article/SB10001424127887324425204578600890536037594.html

http://blogs.barrons.com/emergingmarketsdaily/2013/07/12/china-slower-growth-lower-stock-prices/?mod=BOLBlog

http://www.ustrust.com/publish/content/application/pdf/GWMOL/UST-Key-Findings-Report-Insights-on-Wealth-and-Worth-2013.pdf

http://www.ustrust.com/publish/content/application/pdf/GWMOL/UST-Fact-Sheet-Insights-on-Wealth-and-Worth-2013.pdf

http://www.ustrust.com/ust/Pages/Insights-on-Wealth-and-Worth-2013.aspx

http://www.brainyquote.com/quotes/quotes/b/benjaminfr383997.html

 

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Actions Speak Louder Than Words

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

Best regards,

John Raudat

Canoga Wealth Management LLC

 

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 e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                                     

* 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 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.

 

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://www.reuters.com/article/2013/06/28/us-markets-stocks-idUSBRE95N0HT20130628

http://www.investopedia.com/terms/v/vix.asp

http://www.optionmonster.com/news/article.php?page=pmc/vix_below_17_as_stocks_extend_streak_83001.html

http://www.guardian.co.uk/business/2013/jun/26/commerce-department-economic-recovery-gdp

http://www.denverpost.com/business/ci_23539526/flurry-positive-u-s-economic-reports-reflects-feds#ixzz2XchpDWgI

http://finance.yahoo.com/blogs/the-exchange/gold-slide-isn-t-over-184734466.html

http://finance.yahoo.com/news/wall-street-week-ahead-fed-221408990.html

http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf

http://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp

http://www.economist.com/blogs/freeexchange/2013/06/monetary-policy-2?zid=295&ah=0bca374e65f2354d553956ea65f756e0

http://www.investopedia.com/terms/m/monetarypolicy.asp

http://www.economist.com/news/finance-and-economics/21579833-federal-reserve-tries-clarify-its-goals-tinker-taper

http://www.economist.com/blogs/graphicdetail/2013/06/focus-4

http://www.brainyquote.com/quotes/quotes/w/williamcon393324.html

 

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John Raudat

Canoga Wealth Management LLC

 

9 North Main Street

P.O. Box 375

Chester, CT  06412

860-526-5000

 

John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

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