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The Markets

Michael Schwartz | Wednesday, February 3rd, 2010

Let’s recap some of the good news last week:

The Commerce Department said the economy grew in the fourth quarter at its fastest pace in more than six years;

The Institute for Supply Management-Chicago said its index of Midwest business activity rose more than expected in January;

Consumer sentiment in January as measured by The Reuters/University of Michigan Surveys of Consumers hit its highest level in two years; and

Of the 220 companies in the S&P 500 index that have reported fourth quarter earnings, 78% of them exceeded analysts’ expectations, according to Thomson Reuters. In a typical quarter, only 61% of companies beat Wall Street targets.

Sounds pretty good, doesn’t it? So, how does the stock market respond? It goes down.

Once you delve into it a little further, this “good news for the economy is bad news for the stock market” may not be as illogical as it seems. Do you remember how bad things were back in early March 2009? Just as the economy seemed on the brink of destruction, the stock market turned around and started soaring. Back then, investors detected the early signs of a turnaround in the economy. They were proven right as evidenced by last quarter’s GDP growth and the positive fourth quarter earnings that are now coming out.

Effectively, the stock market anticipated the recent positive news and that is partly why the market rallied so much in 2009. Now, it appears that much of this good news is already “priced” into the market. So, rather than propelling the market higher, the good news is causing some investors to take profits while waiting for the next catalyst.

Whether this recent downturn is just a bump along the bull market path or the beginning of a new leg down is unknown. Either way, we continue to monitor the situation on your behalf.

Data as of 1/29/10 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -1.6% -3.7% 30.0% -8.9% -1.9% -2.6%
DJ Global ex US (Foreign Stocks) -3.4 -4.4 43.5 -7.4 2.8 0.7
10-year Treasury Note (Yield Only) 3.6 N/A 2.8 4.9 4.1 6.7
Gold (per ounce) -0.5 -2.3 20.9 18.7 20.6 14.3
DJ-UBS Commodity Index -4.3 -7.3 16.4 -7.0 -2.5 2.9
DJ Equity All REIT TR Index -0.7 -5.2 41.7 -15.7 1.3 10.3

Notes: S&P 500, DJ Global ex US, 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,, 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 or not available.

WHAT DO A MICROSCOPE AND A TELESCOPE have in common as it relates to investing? Both of them represent ways to look at the markets that may help us be better investors.

Structurally, we like to view the markets through a microscopic and a telescopic lens. Through reports like the one you are reading now, we keep tabs on what is happening at a microscopic level. We know that what happens in the short-term at the granular level could be early warning signs of longer-term changes. These microscopic changes could include things such as: changes in market internals and technical analysis, insider buying or selling, unexpected changes in economic numbers, and sentiment changes.

Our telescopic lens captures the big picture view of trends and opportunities that unfold over longer periods. These take longer to come to fruition, but usually end up generating the greatest rewards. Telescopic changes could include things such as: regulatory changes, technological changes, monetary and fiscal policy changes, and demographic changes.

Utilizing a microscopic and telescopic point of view helps us pay attention to the short-term so we don’t get blindsided, while allowing us to scan the horizon for bigger trends that may ultimately have the largest positive impact on your portfolio. You could also call it being “bifocal.”

Weekly Focus – Think About It

“It is impossible to produce a superior performance unless you do something different from the majority.”

John Templeton

Value vs. Growth Investing

Here are the numbers (1/29/10)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market -1.78 -3.55 -3.55 4.76 34.99 -6.75 0.89
Large Cap -1.57 -3.53 -3.53 3.80 31.02 -6.91 0.38
Large Core -1.08 -2.88 -2.88 4.38 30.82 -4.76 1.53
Large Growth -2.74 -6.02 -6.02 3.67 39.45 -4.72 0.02
Large Value -0.99 -1.80 -1.80 3.30 23.04 -11.56 -0.98
Mid Cap -2.26 -3.68 -3.68 7.04 45.30 -6.72 2.18
Mid Core -2.66 -3.88 -3.88 7.01 43.31 -6.96 1.71
Mid Growth -2.00 -4.54 -4.54 6.27 41.99 -5.63 2.77
Mid Value -2.03 -2.63 -2.63 7.83 50.83 -7.97 1.73
Small Cap -2.51 -3.44 -3.44 8.01 48.47 -6.06 1.72
Small Core -2.73 -3.38 -3.38 6.91 49.38 -7.17 1.67
Small Growth -2.75 -4.71 -4.71 6.04 37.87 -6.07 0.63
Small Value -2.03 -2.28 -2.28 11.05 58.84 -5.41 2.51
US Core -1.55 -3.13 -3.13 5.09 34.38 -5.22 1.66
US Growth -2.59 -5.63 -5.63 4.36 39.82 -4.97 0.71
US Value -1.27 -2.00 -2.00 4.78 30.61 -10.37 -0.13


©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

It’s Good Advice to Create an Annual Review Checklist

The beginning of the year is a great time to think about what you want to accomplish and to set specific goals. A good way to start is to create your own annual review checklist.

Things change … interest rates, tax laws and your personal situation. Many events may require you to revise your financial and estate plans, including:

  • Marriage, divorce, separation or serious consideration of one of those options by a family member
  • Expected or actual birth of a child or grandchild, adoption or addition of a stepchild
  • Health changes that affect your or your spouse’s planning, lifestyle or attitudes
  • Desire to add or delete specific bequests
  • Decision to make gifts of property or cash to your children/grandchildren, or to make a charitable gift that will provide income for life
  • Significant changes in your asset values
  • Acquisition or disposal of real estate (or serious consideration)
  • A received or imminent inheritance
  • A change (or consideration of a change) in life insurance beneficiaries
  • Reconsideration of designated guardian(s) or successor guardian(s)
  • Wish to name a specific person as advisor to your executor and/or trustees
  • Relocation due to a job transfer, retirement or personal reason
  • Significant changes in your spending patterns
  • Changes in retirement planning
  • Purchase of a retirement home, vacation home or time-share unit
  • Significant realized or unrealized capital gains or losses from last year
  • Casualty insurance review
  • Changes in your savings plan contributions

Plan for the unexpected.  Along with your estate plan and testamentary arrangements, consider writing down your objectives, ideas and wishes in a letter to your family that will guide them in handling estate and investment matters, and in making other important decisions, in your absence.

Consider including a note of caution not to consider your thoughts rigid or binding, but to temper them by careful consideration of facts and circumstances existing when a decision must be made. Things change, and we can’t foresee every eventuality.

Here are other things you may want to include in your letter:

  • Arrangements for funeral, last rights and burial
  • Provisions relating to medical and nursing home car
  • Wishes regarding life support systems and organ donation
  • Advice on whom to seek out for medical, legal and financial counsel
  • Investment philosophy
  • Important goals for the family
  • Special information or other comments for a spouse
  • Locations of original legal documents (power of attorney, will, etc.)

Your letter should be signed and dated, and may be sealed. The envelope should be marked “To be opened in the event of my serious illness, incapacitation, or death.”

It is important to address these and related issues now. Set goals and determine a time frame for accomplishing them.  Remember the adage that if you fail to plan, you can plan to fail.

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