Just a little over one year ago, on March 9th, the Standard & Poor’s 500, the largest 500 publicly traded companies domiciled in the United States closed at a bear market low of 676.53, some 56.78% below its record high close of 1,565.15 set on October 9th, 2007.
According to Bespoke Investment Group, “bull markets that pass the one year mark have almost always lasted two years or more.” In fact, there have been thirteen bull markets since 1930 that have lasted more than one year and all, but one lasted at least two years. The one that did not was in 1948 and ended after 393 days with a total gain of twenty-four percent. The average gain for these thirteen bull markets was 153% over an average of 4.4 years.
Once again, this bull market is just over one year old and to date has returned 72.38% to investors.
It would not surprise us if this bull market extended over the similar average time frame of 4.4 years, but with a less than average total return. In a nutshell, at this time we expect high single digit total returns with limited downside risk.
U.S. Household Debt Falls in 2009
The Federal Reserve began to track aggregate household debt in 1946, sixty-four years ago, and for every year since it has increased. That is except for 2009. In part, as evidence that Americans have begun to repair their own balance sheets, Household Debt shrunk by 1.75% while business borrowing fell by 1.8%. It is also apparent to most that debt shrunk due to the lack of available credit from our lending institutions as well as the concern that most Americans feel regarding the state of the labor market. On the flip side, net worth of U.S. Households increased by 1.29% to $54,200 billion as the stock market rallied more than twenty-three percent.
Private Sector Job Growth Stagnant Since 1998
According to the U.S. Labor Department, in the aggregate there has not been a private sector job created since 1998. However, there have been 2.4 million government jobs created, most of which at the state and local level. Furthermore, since the recession started in December 2007, there have been 8.5 million private sector jobs lost and no public sector jobs.
Our take: the private sector provides the creativity and innovation so critical to a thriving economy, without which, over time, job growth will stagnate and eventually our standard of living. This is why the number one, two and three priorities of the Obama Administration and Congress should be the economy.
Fed Stands Pat on Interest Rates, Maintains Language
The Open Market Committee of the Federal Reserve, the body that determines Monetary Policy and therefore the direction of interest rates met Tuesday and decided to leave interest rates alone at between zero and ¼% on the Federal Funds Rate. Contained within its press release was the statement that “with substantial resource slack continuing to restrain cost pressures and long-term inflation expectations stable, inflation is likely to be subdued for some time.” Further down, the Fed notes further that given the “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
An accommodate Fed is good news for stock as well as bond investors. It is most likely continued bad news for investors in Certificates of Deposit.
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Places to hide?
Monday, March 29th, 2010It seems the market has momentum and a mind of its own.
For that reason, we ran a segment entitled “nowhere to run, nowhere to hide” on WGY.
The stocks that we mentioned were Pepsi, (PEP 2.9%) Verizon (VZ 6.3%) and Conoco (COP 3.9%). A mix of these three stocks (telecom, beverage and energy) seemed to be a good start to an income producing stock portfolio.
We also mentioned the Permanent Portfolio (PRPFX) which is a no-load mutual fund with an investment objective of conservative allocation. A solid track record over the last decade though past performance is no guarantee of future results.
Finally, two bond funds MetWest (MWTRX) Total Return and Pimco Total Return (PTTDX) rounded out the investment ideas in this theme.
Consult your investment advisor before investing hard earned dollars.
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