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| Investment Advisor - Market Perspective July 2009 |
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The 4th of July Holiday is upon us and I hope that by the time you receive this update you will have had a wonderful holiday weekend! At this time it looks like the weather may cooperate and not rain on our fireworks display and local boat races.
After recovering from the big drop in value during the first 9 or 10 weeks of this year, the stock market has been fluctuating up and down around zero and ended this current week at negative 0.76% YTD. We remain very cautious in our market allocations as we went back into more stocks and bonds over the past 60 days and have reversed a portion of the stock allocations recently because of the market activity both in stocks and bonds, which also had a small reversal during the past few weeks.
It seems that the majority of economists and technical analysis think that we will see another market reversal prior to a sustainable long term potential market recovery. There are, of course, those advisors who think that we are already in that long term recovery. As an example, the following are some bullish comments from several analysts:
Ned Davis Research June ‘09
1). “we continue to recommend aggressive allocation to equities aligned with a cyclical bull market that is still in its early stages.”
2). “S&P 500 gained +15% in 2nd quarter, after previous quarterly gains of at least +15% the S&P has advanced in all 8 cases since 1942.”
STIR Research June ‘09
Next week will mark the start of a new parade of quarterly earnings announcements. And this may be the catalysts determining the market’s direction.
Our logic is this: for the current quarter, and it will probably turn out to be one of the best in many years, the market has gained +16%, for the S&P 500 Index. All of that gain came in the first 27 trading days, or the first 6 weeks of the quarter. The balance of the quarter, the next 35 days, the market has moved sideways.
What occurred during those first 27 trading days was the release of 1st quarter earnings results by the majority of the large companies. Actually it was the surprise, on the upside for a change, in the larger banks earnings that started the rally. More follow through came from other companies, like Apple and Google, etc, also reporting better than expected earnings.
Will we see a repeat? It is very possible. Analysts were way off on their earnings forecasts in 2008 by being too optimistic, and probably over reacted with downgrades for 2009. At least that was the case for the 1st quarter. Even after being caught off guard by better than expected earnings, we haven’t seen too many analysts making positive revisions of 2nd or 3rd quarter earnings forecasts.
This just may set the stage for another round of pleasant earnings surprises over the next month.
As always, we remain vigilant to adjust your portfolio as circumstances dictate so that you will not experience the drastic losses that have occurred in most peoples’ investments during the past 18 months.
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