What’s Going On With The Markets?

Well that was quick!

I’m referring of course to the short uptrend from the stock market correction that had seen a bottom on June 8. As of today, the S&P 500 index undercut the lows of the last correction and has put us back into another market correction. With all the overhang from worldwide events and mounting evidence of a slowing recovery, investor, consumer and institutional sentiment are at their lows.

In last week’s statement from the Federal Reserve, where it continued to hold interest rates at 0-0.25% for an extended period, the “Fed” acknowledged a softening recovery and lackluster employment growth. Hints of another fiscal stimulus or monetary easing emanated from Washington to help avoid a possible double-dip recession. Now you may have heard about the G-20 Summit meeting this past weekend in Toronto where the United States was the lone voice in encouraging a coordinated effort of more fiscal stimulus to heed off a global recession; instead, most European nations were insistent that austerity measures and tax increases were the way to go to bring their fiscal houses in order. While I’m totally in favor of balanced budgets and fiscal conservatism, simultaneously cutting spending and raising taxes are the surest way to plunge your country into recession or worse, depression (history has demonstrated this time and time again.) At a time when the recovery is so fragile, doing one of the two is risky; doing both is simply economic suicide.

The Conference Board reported a sharp drop in Consumer Confidence today which caught Wall Street completely off guard. However, today’s figures are in sharp contrast to last Friday when the University of Michigan reported its Consumer Sentiment gauge at the highest level in two years. Although the 9.8 point drop in the Conference Board numbers was higher than expected, keep in mind that Consumer Confidence fell over 10 points in February just before the last stock market rally. These numbers really don’t mean a whole lot to the markets, so I’d caution against reading too much into today’s report or market reaction.

As I’ve written before, the stock markets hate uncertainty. With the BP Gulf disaster getting worse, the European Union is still arguing who should pay for whom and how much, financial regulation passage still uncertain, new job creation largely absent, and slowing growth in China, we have the makings of a “bad news salad.” Even though yields on money markets and Treasuries are at their lows, it seems that there is no appetite for risk or conviction in the markets by both the bulls and the bears. With poor May retail sales, jobs, and housing numbers, the bulls haven’t had much to hang their hat on lately. But keep in mind that one month does not make a trend.

So we find ourselves once again at a critical level in the markets today. At a closing level of 1,041 in the S&P 500, the bulls must come in and rescue this uptrend or risk dropping another 6% from here to about 980. I must admit that I believe that our only short-term hope of averting this drop is a very favorable June jobs number on Friday (on the order of 100,000 new jobs created.) Tomorrow (Wednesday), ADP will release their preliminary estimate of the jobs number (of mostly private employment; it does not include government jobs) and it is widely expected to show 60,000 new jobs created. The ADP report is widely anticipated as an indicator of the main jobs report, but it has been known to be way off. However, many institutions and traders treat it as a preview of Friday’s number. Let’s hope that the Labor Department has a nice 4th of July weekend send-off for us.

So much bad news, negative sentiment and consecutive down days are built into the market that a bounce is overdue and may come tomorrow (Wednesday) if the ADP jobs report is favorable. For our portfolios, I will be closely watching the 1,041 level on the S&P 500 index for support. If that support line is definitively broken, I will look to reinstate the portfolio hedges that have served us well in the past. Even at these market levels, we are still considered to be in a correction, not another bear market. By technical definition, a bear market is a 20% decline from a market high, which was 1,220 in the S&P 500 index. That gives us running room to 976 to avoid descending into another bear market.

I personally believe that with an undoubtedly positive 2nd quarter earnings season coming up and a good jobs report, we can avert the drop to bear market levels. I am not in the camp that believes that a double-dip recession or depression is in our near-term future. Short-term, a negative jobs report and poor earnings guidance combined with severe austerity measures around Europe will likely mean bad news for stocks. My broken crystal ball predicts however that we will pull out of this malaise and that the recovery, albeit tepid, will carry the markets upward through the rest of the year. However, if the markets insist on going lower into bear market territory, I will look to liquidate a portion of equity portfolios and increase our hedges. Recall that earlier in the spring I mentioned that the summer months would be both volatile and bumpy…and here we are.

I am working on my 2nd half 2010 market and economic outlook and will send it out to everyone later this week. I wish I had better news for you right now. Nonetheless, I hope this update helps you understand a little more of what’s going on with the markets. Please feel free to forward this message to anyone who might benefit from reading it. If you have any questions or comments, please don’t hesitate to contact me. If you or someone in your family or circle of friends is considering hiring a financial planner, please visit our website or consider a complimentary financial roadmap via the link below. Your first consultation with us is complimentary and there is no pressure to make any decisions.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.
All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Market Update for May 20 2010

Today marked the 9th day out of the last twelve where the market sold off in a clear message that world governments need to get their acts together and control their fiscal, spending and regulatory policies.  With the Euro currency at historic lows, demonstrations in Greece, an environmental offshore oil catastrophe, German bans on naked short selling, higher than expected weekly job claims, and financial regulatory reform debates going on, we’ve had the perfect storm to extend this market correction.  Stock markets don’t like uncertainty and wishy-washy policy making, so they express their dismay by selling off risky assets.  As of today, the major indices have given back all their 2010 year-to-date gains and then some.  Nonetheless, the long term stock market uptrend remains intact, though as I’ve indicated before (May 6), we’re in for some bumpy times in the market for the summer.

I wish I could say that my crystal ball knew when this short-term pain to the downside would be over.  However, all technical indications is that this move downward is a bit overdone, though admittedly the move to the upside was also overdone in the short-term.  I believe that we’ll see a short or intermediate-term bounce in the next couple of days as value investors and bargain hunters swarm the markets.   We will do the same as the waters calm down.

Indications from Washington are that we may get a vote on the financial reform bill (being debated) tonight and perhaps remove some of the uncertainty in the markets.  I’m not sure what the Obama Administration will tackle next (immigration reform, tax reform, ban on sovereign bailouts, take your pick), but you can bet that it will also rattle the markets when it gets underway.  The European Union appears to be working on a few measures to further restore confidence to the markets and those measures may come to light over the weekend or early next week.  Longer term, we will have to contend with overseas currency and economic weakness, further sovereign debt issues, huge budget deficits, and a stubbornly high unemployment rate.  For the time being though, we have an improving fundamental economic picture, ultra low interest rates, excellent corporate earnings, and plenty of unspent stimulus to keep the market uptrend going for awhile.

Because I felt that it was more likely than not that the majority of the short-term move downward was over today, I decided to lift about 50% of the contra-position hedge that I held on client accounts.  This will allow portfolios to more fully benefit when the uptrend resumes. Leaving 50% of the position “on” allows me to be at least half-right in case there is more downside to come.  This is just prudent hedging.  Should the markets show signs of continuing their downward trend, then it’s just as easy to put the position back on and perhaps add to it.  As of this moment, I see no negative longer term indicators in the markets that tell me that I should be liquidating equity positions and moving to a higher cash position.

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Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

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Market Update-Week Ended March 27, 2010

The stock markets have been enjoying several weeks of continued gains after a market correction that ended around mid-February.  Corporate earnings have been stellar, mostly on a net income basis, but many have also enjoyed sales growth as well, albeit from a low (2009) base.

We’ve had stock market indices that have run up to 18 month highs and we came within 100 points of 11,000 on the Dow Jones Industrial Average this week.  Down days in the market have been only very mildly down as investors enjoy more confidence that the economy is slowly improving and that the possibility of a double-dip recession this year is nil.  This has all happened despite bad news from Europe relating to Greece’s possible default on their sovereign debt, Fitch’s downgrade of Portugal’s sovereign debt, passage of “Obama Care”, poor sales of U.S. Treasury bills, record federal deficits, and still dismal (though improving) unemployment figures.  The news that a South Korean Navy ship experienced an explosion yesterday barely made the markets blink.  High inflation is currently nowhere in sight, though it’s a certainty that it will be here before we know it.

With any long string of stock market gains (with only minor down days) comes the inevitable correction in the market. During the latter part of this week, days that were up for the most part suffered downside reversals and profit-taking towards the end of the day.  This could be a sign of another correction coming (perhaps in the range of 5-10%), portfolio managers adjusting their quarter-end books, or just traders preparing for a week or so off for the Easter holiday.  Dwindling stock market volume certainly would indicate that many are planning some time off.  A correction would be healthy for the market, and would give those still sitting on the sidelines or mostly invested in bonds an opportunity to jump back into the stock market at a lower price.  Stories are abound about $3 trillion still on the sidelines in money market accounts earning less than 1-2% interest or invested in low-risk short-term bond funds.  I personally still believe that we will enjoy returns this year in the low to mid-teens while gross domestic product (GDP) growth will be in the 3-4% range, which is historically low.

Next Friday April 2nd, while the stock markets are closed (the bond markets are open), unemployment figures for March 2010 will be reported and they’re expected to show actual job growth for the first time since early to mid-2008.  The boost will be partially attributable to the hiring of census workers, though employers, who are enjoying record productivity levels, have been increasingly hiring temporary workers and will have no choice but to make permanent hires soon, as the existing workforce grows exhausted from one person doing the work previously done by two people.  Even General Motors announced this week that it is recalling 700 workers to its plant in Ontario Canada and plans to hire 60-70 new workers.  The employment trend is definitely in the up direction, but the speed is still at a snail’s pace.  For the unemployed, the pace is understandably far too slow.

For those taking some time off for spring break and the Easter holiday week (post or pre), I hope you enjoy your time off and have good weather wherever you go.   To all who have to work, enjoy a great holiday nonetheless.

I welcome your comments and feedback. If you have any questions, please feel free to get in touch with me and be sure to share this post with your friends and colleagues.  And please be sure to let them know about me if you think that they might benefit from my services.  As a CFP® and NAPFA registered investment advisor, we have a fiduciary responsibility to always put your interest ahead of ours and avoid conflicts of interest.  Most brokers and advisors cannot say this nor do they adhere to this very high standard of care.

A summary of the week’s market results :

Market Update For Week Ending 3/26/2010

Index Close Net Change % Change YTD YTD %
DJIA 10,850.36 +108.38 1.01 +422.31 4.05
NASDAQ 2,395.13 +20.72 0.87 +125.98 5.55
S&P500 1,166.59 +6.69 0.58 +51.49 4.62
Russell 2000 678.97 +5.08 0.75 +53.58 8.57
International 1,572.26 +0.17 0.01 -8.53 -0.54
10-year bond 3.86% +0.17% +0.05%
30-year T-bond 4.75% +0.17% +0.06%

International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Market Update and A Caution For The Week Ending 5/29/2009

The markets ended up for the third month in a row with a late day rally on Friday, capping one of the best (albeit volatile) months in two years. With the exception of the Dow Jones Industrial Average (of 30 stocks), all indices are positive for the year.  GM traded below $1 a share today as bankruptcy is likely to occur on Monday.

Opinions about the markets’ direction run the gamut from “drunken bulls” to “raging bears”, with everyone taking each up or down day to prove their point.  But the solid fact is that the market is in a confirmed uptrend, and no opinion can argue with that.  But that’s all they are: opinions.

Economists predict that the recession will end by the 3rd quarter of this year, but the recovery will be slow.  For states like Michigan and California, recovery will likely begin in the 1st or 2nd quarter of 2010.  In the meantime, we still have to deal with waning consumer demand and higher unemployment.  Nonetheless, consumer confidence rankings jumped nicely in April, a bullish sign for the markets and the economy.  Remember, the stock market usually leads an economic recovery by 6-9 months.

Our investment approach remains a cautious, defensive one as we closely monitor the markets for signs of sell-offs.  Over the past few months, I’ve slowly increased clients’ allocations to equities and bonds to take advantage of the markets’ rallies.  However, I continue to maintain a healthy allocation to cash as a defensive move should the markets begin to move against us.  Any move this high, this fast, is a good reason to be cautious.  Fortunately, technical indicators confirm that the bullish sentiment is higher than bearish negativity and therefore give reason to be optimistic.  As billions of dollars of economic stimulus hits the streets, it can’t help but “lift all boats.”

Many prognosticators and so called experts predict that the low on March 9 was not the bottom, and that we’re merely experiencing a bear market rally.  Some even predict that we may have a severe 35-40% drop from here before the economic recovery and the “real bull market” kicks in later this year.  That drop could begin next week, next month, or next quarter—no one really knows.  I would be remiss if I didn’t warn you about this possibility. I don’t know if they’re right or not, but everyone should nonetheless be prepared for that possibility.

For my clients, I will continue to take advantage of the upside of the markets as long as it lasts and will not simply wait on the sidelines for the bears to arrive.  If or when the bears return, I am prepared to make the necessary tactical adjustments to minimize the effects on client portfolios and lock in as much of the recent gains as possible.  If the bears decide to stay for awhile, then we’ll take advantage of those conditions and attempt to profit from such bearish conditions.

In any case, future annualized returns on equities and bonds are likely to be in the single digits for some time.  Nonetheless, there’s no substitute for regular saving and continuous financial planning.  That combination can help overcome any lower expected returns.  Remember, it’s never too late to start.

I welcome your comments and feedback and invite you to read the below articles.  If you have any questions, please feel free to get it touch with me and share this with your friends and colleagues.

http://www.ydfs.com

Market Update For Week Ending 5/29/2009
Index

Close

Net Change

% Change

YTD

YTD %

DJIA

8,500.33

+223.01

2.69

-276.06

-3.15

NASDAQ

1,774.33

+82.32

4.87

+197.30

12.51

S&P500

919.14

+32.14

3.62

+15.89

1.76

Russell 2000

501.58

+23.96

5.02

+2.13

0.43

International

1,317.31

+27.10

2.10

+79.89

6.46

10-year bond

3.47%

+0.02%

+1.22%

30-year T-bond

4.34%

-0.05%

+1.65%

International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.

Market Wrap
A volatile post-holiday week ended with the bulls back in control of Wall Street and most major equity indices in positive territory for both the week and the year to date. The Dow industrials continued to lag, held back by developments at component General Motors in particular, but other benchmarks gained 3% to 5%. Foreign shares also ended in the black, while bond markets were mixed. For more on recent trading activity, please read:
http://finance.yahoo.com/news/Stock-market-fluctuates-after-apf-15385078.html

Consumer Confidence Revives
The American public’s battered sense of the economy’s health revived somewhat in April. Analysts warn that while the light at the end of the recessionary tunnel may finally be in sight, it will take some time for a true recovery to begin. In fact, while the business environment seems to be improving in many parts of the country, conditions in the Midwest in particular appear to be getting worse as the auto industry lurches from crisis to crisis. For more on the latest economic indicators and what they mean for the economy, please read:
http://bloomberg.com/apps/news?pid=20601087&sid=aYRGnAW70og8

Is The Recession Nearing An End?
Some economists now say the longest and most savage economic contraction in six decades may finally be winding down. But while consumers are in relatively high spirits, both labor markets and home prices remain fragile at best as layoffs and foreclosures continue. Where are the “green shoots” that some see heralding a new cycle of economic growth? And where are the storm clouds ahead? For more, please read:
http://www.msnbc.msn.com/id/30979615/

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.

Roller Coaster Market Ride for the Week Ended March 20, 2009

It was a roller-coaster ride on the markets this week. First we were down, then we were up, then we were down again. As I wrote earlier this week, volatility is here for a while in the markets and, although we were up overall for the week, the fundamentals just aren’t there to push things in a consistent upward direction.

Congress’ distraction with the AIG bonus debacle meant that they were focusing on that instead of moving along the plan for dealing with the financial crisis. As a result, companies are equally distracted by concerns of whether accepting further government help means more meddling in their business affairs. So instead of lending money, for example, financial institutions become more concerned about paying back the government and operating independently, thereby negating the whole benefit of the bailout. In addition, much needed talented employees may consider joining firms with no government restrictions on compensation or potential exorbitant taxes on their bonuses.  I’d be interested in your opinion here-please feel free to leave comments below.

I predict that we will continue to see some up days, some down days and generally sideways movement in the markets for some time. In the short-term, although we may see some net positive gains, there seems to be more risk than reward out there. Caution is still the approach we encourage.

My advice remains the same: consistent saving is your best defense against volatile markets. Keep contributing to that 401(k), IRA and your “dream” accounts. Pay down your debt as much as possible and make sure that you have a liquid emergency fund of at least 3-9 months of salary. And, as financial guru Dave Ramsey says, “refuse to participate in this recession” by enjoying every day, taking those vacations, and keeping in touch and sharing time with your loved ones.

Enjoy this first weekend of spring 2009. And remember, if the first robin of spring sees its shadow, you can expect at least twelve more weeks of crabgrass (at least according to “Magic” Matt Alan of Sirius-XM 70’s on 7.)

I’ve provided a weekly summary of the markets below:

Market Update For Week Ending 3/20/2009

Index

Close

Net Change

% Change

YTD

YTD %

DJIA

7,278.38

+54.40

0.75

-1,498.01

-17.07

NASDAQ

1,457.27

+25.77

1.80

-119.76

-7.59

S&P500

768.54

+11.99

1.58

-134.71

-14.91

Russell 2000

400.11

+7.02

1.79

-99.34

-19.89

International

1,054.60

+74.07

7.55

-182.82

-14.77

10-year bond

2.63%

-0.26%

+0.38%

30-year T-bond

3.65%

-0.02%

+0.96%

International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing may change without prior notice.
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