Stock Market at a 4-year High… Again…

23 08 2012

While it has been an unusually long pause between market updates this time, I can assure you that we were not asleep at the wheel. In this instance, no news was good news, as the stock market has maintained its generally upward trend for the past several months with only moderate volatility for us to endure.

As of this writing, the United States stock market is approaching the high of 13279 on the DOW and 1419 on the S&P500 that it had previously reached on May 1st of this year, before the 10% correction that we went through during June and July. Since then, we have had generally uninteresting economic news on the domestic front, no real political unrest that has given us pause, and the Europeans continue to struggle through massive debt issues and one of the worst recessions that region of the world has had to face in several decades.

It can be easy to fall into the trap of thinking that “something good” must actually happen for the stock markets to go up. This is actually not the case. Given the fact that bond markets have gone up continually over the last several years, the current prices of bonds are so high, that most investors have begun to realize that future returns of the bond market are likely to be disappointing. We are beginning to see a shift of capital from what is historically an asset of moderate risk and return (bonds) to an asset class that historically has been riskier – but is currently acknowledged to be undervalued (stocks – especially blue chips).

As a result – nothing spectacular is happening in the economy to move us measurably forward, but as money shifts from bonds to stocks (or from sideline cash to stocks) – the price of stocks will tend to move up simply as a result of supply and demand. In other words – beause more and more investors are dissatisfied with the expected returns from bonds in the forseeable future – stocks seem like a more attractive alternative, especially for long-term investors. The current owners of the stocks must be convinced to sell them – and this “convincing” is done by investors paying higher and higher prices for the stocks over time.

Approaching a new or previous high is not without danger, however. Those who have invested for a while also understand that when the market approaches a previous high mark, it may fail to break through – almost as if an invisible lid has been placed upon the market itself. Sometimes, even in bull markets, the market must pull back and “take a new run” at the “lid” to break through. Currently the market does not have a great deal of momentum; while investors are buying stocks, they are not doing so with enough gusto or wild abandon for us to be convinced that a breakthrough will occur. So… a potential correction may be in store for us.

As we have mentioned before, we are of the belief that the stock market will likely remain in a “trading range” for several years – with a slight slant to the upside (just enough to make investing worthwhile, I suspect) but not a roaring bull market that we enjoyed after the last recession. Instead, we are likely to enjoy several months of upmarkets, followed by several months of downmarkets… squeaking out 7 to 8% returns on an annualized basis, and paying for it with a good bit of volatility and lack of market direction. Dividends will likely play a significant role in creating portfolio growth. We have adjusted portfolios to try to maximize investor returns (within risk tolerance) for this scenario, and continue to admonish patience.

Most experts believe that we are unlikely to see any real economic or fiscal news between now and the election. While it is possible that world events may cause unrest, or that some good news may come out of Europe that bolsters markets for a while, in general it seems that most institutional investors are in a “wait and see” mood. Market movements, however, can give some insight into likely election results. A strong stock market during an election year has historically increased Presidential approval ratings and would likely increase the chance of the current President being reelected. If, on the other hand, the market should falter between now and November, incumbent approval ratings are likely to decline, thus increasing the odds of the Romney/Ryan ticket being successful on election day.

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093  www.WealthGuards.com  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements

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Will there be a herd mentality to “sell bonds” causing bond funds to suffer more than balanced funds?

21 01 2011

As with any financial market or product there is the possibility that investors will “sell bonds” as a herd, but there are a few things to consider.

First thing to think about is – what are balanced funds?  Many “balanced” funds are made up of a few different bond and equity funds, the blend depending on their ultimate goal and risk.  Others invest directly in stocks and bonds to create their portfolio.  What that means is that while they do hold some bonds in their portfolio, they also own equities, and since these asset classes don’t typically move together, balanced fund portfolios will most likely suffer less than a bond-only fund if there were a hard bond sell-off.

In the event of a bond sell-off, it can be helpful to picture where in the market the moeny that is currently in bonds would be reinvested.  Is it likely the “herd” is moving into cash, into equities, or into another asset class?  If you believe that the money from the bonds is moving to equities, then balanced funds will almost certainly perform better in this situation.

Additionally, it is important to consider what kind of bonds are suffering the sell-off.   The behavior of municipal bonds, for example,  is very different than the behavior of high yield bonds; the behavior of long term bonds is generally very different than that of short term bonds.  It is similar to trying to discern if stocks will suffer- without knowing if you are talking about emerging markets, developed foreign markets,  or US stocks. Each will behave differently under different interest rates, currency valuations, and economic conditions.

As with equities, you need to have a firm understanding of why you are holding any particular bond investment.  If you are looking for extreme safety of principal,  then most investors would hold short duration, high quality bonds; but but at the expense of a competitive yield.  If you are looking for a higher yield in bonds, in the current market environment you are going to have to take some additional risk to your principal to get it.  Whether that risk is best taken by holding a longer term bond (more interest rate sensitivity), or a lower quality bond (higher risk of default), typically seems to be an individual preference.

The ultimate answer for most investors is to find a mix of assets that you are comfortable with and stick with them.  If there is one thing the markets have proven time and time again, it’s that the patient, well diversified, properly allocated investor will typically fare better over the long run than the investor who is constantly making changes to his investments based on daily news and the “hot pick.”

Information in this article does not constitute a recommendation or solicitation for any product mentioned.  Mutual funds may only be sold by prospectus.  Past performance is no guarantee of future performance.  Consult your financial advisor for specific recommendations.





Market Euphoria…

3 08 2009

Mike Carignan InternetBy Mike Carignan, CRPC®

Well it’s the start of a new month and there is a lot of sunshine out there right now.  I mean the college and pro football seasons are about to begin and there seems to be a sense of anticipation and euphoria.  Even if last year their team didn’t do well or had some player scandals, right now everyone’s favorite team is in first place.

If you take a look at the last few weeks in the equity markets you’re going to see much the same attitude.  Much of the fundamental problems that led to the market downturn and the credit crash have not been fixed. Earnings are a little better but not great.  Unemployment is still rising, but slower than before.  Yet there is this feeling of euphoria in the markets that continues to sustain this three week rally we’ve seen.  The S&P 500 alone has increased from 879 to 1,001 (+13.9%) since July 10th!

Is it here to stay or are there some more storm clouds ahead that will dampen the enthusiasm?  Time will tell, but the overall feelings of despair and capitulation seem to be mostly gone and money appears to be following an optimistic view of the future again.  For now, the markets are working for investors again — rebuilding some of the confidence that was lost over the last year.  There is still potential for some summer storms, but it appears the worst of the monsoon may be over and most investors feel that it’s time to start the rebuilding process again. 

 

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093

   www.WealthGuards.com





More on the CIT conundrum

21 07 2009

CastleInternetPhotoTiniest

By Jon Castle, CFP®, ChFC®

It is with a definite sense of relief that we welcome the news that CIT has reached a deal with some of its major lenders to acquire more financing and to avoid having to file for Chapter 11 bankruptcy protection.  Watching the bond markets today was interesting; short duration CIT bond priced  jumped significantly as investors realized that in all likelihood, bonds maturing before the end of 2009 will likely pay off.

It is also a good sign that this rescue came not from the government, but from private capital.  Either CIT’s lenders felt their backs were against the wall and had to prop up the company to avoid getting less than they would have in a bankruptcy sale, or they truly feel that CIT can restructure itself and become a profitable business again.

Interesting that only a few short months ago, the Fed felt that CIT was viable enough to not only lend them over 2 billion dollars, but also approve their re-registration into a bank-holding company.

Needless to say, we will be closely watching CIT, and also watching closely for any opportunities to exit these positions at a profit if at all possible.  I can’t help but feel that we dodged a bullet and just may not get a second chance in the future.

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093   www.WealthGuards.com  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.





CIT and Market Panic

15 07 2009

CastleInternetPhotoTiniestBy Jon Castle, CFP®, ChFC®

Wow!  This has been a really interesting one to watch – if stark terror and really, honestly trying to make a good decision for your clients is what you are into! 

I became aware over the weekend (thanks to 24-7 Wall Street Journal service) that CIT (this is NOT CitiGroup the Bank, by the way) had hired a bankruptcy attorney.  Well, we are holding some short-term CIT bonds; we were able to buy them on an average of 70-80 cents on the dollar several months ago.  Clearly, if the company goes bankrupt, we won’t get 100% on the dollar on the bonds, so… as an adviser we jump in to action… what to do… what to do?  Hold or dump them?  Can we even sell them? 

Government said last year CIT was a pretty safe bet; at least enough to give them some TARP money.  Recently (after we bought the bonds, of course) they are saying that CIT is not “too big to fail” (ie – if they fail, the world won’t end as we know it) and so the feds have been dragging their feet on their conversion to a bank holding company, then transferring assets there, and FDIC insurance, et al. 

Long story short, CIT has a pile of bonds (essentially IOU’s) they have to pay off over the next couple of quarters and think they can’t pay because businesses are not paying up on their leases.  Everyone’s scrambling, maybe they’ll be bought out, maybe they’ll go bankrupt, etc, etc. 

Last news that we have is that they are in talks with the government; the market for their bonds has pretty much frozen up; looks like the only option is to hold the bonds for now.  My guess is that the Obama administration does not want the black eye of being labelled only willing to save big companies and companies with unions and willing to let companies which support small businesses wither and die.  We’ll see.

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093   www.WealthGuards.com  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.