“Off The Wall” Blog
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Commodities and the Kentucky Derby – The Crowd Favorites Both Lost
By David B. Armstrong, CFA | May 09, 2011 | Weekly Market Commentary
Commodities got crushed last week and no amount of mint juleps and crazy hats can make that hurt go away. Silver was down 27% for the week and oil was routed to the tune of a 14.7% loss as well. We think a lot of the silver pull-back had to do with the fact that margin requirements were increased. The sharp increase required investors to deposit 84% more cash to support their positions or vastly reduce their holdings of contracts. Hey – when commodity brokers increase the margin requirements, do you think that’s a massive warning sign regarding speculation? We do…but we keep hearing that “it’s the losers who keep coming back to Vegas.”
Additionally, the S&P 500 lost ground over the first 4 days of the new month – something not seen since 2008.
The equity markets we track were all losers last week. The Dow Jones Industrial Average (DJIA) lost -1.34% to finish at 12,639, the Standard & Poor’s 500 (S&P 500) Index lost 1.72% to finish at 1,340 and the Nasdaq Composite Index lost 1.60% to finish at 2,828. The Russell 2000 index, which tracks the performance of small capitalization stocks, lost 3.69% to finish at 833.
There was good news on the unemployment front as the U.S. economy added roughly 268,000 private sector jobs in April. However, the bad news was that the unemployment rate inched up to 9.0% from its 8.8% reading in March. The monthly labor report from the U.S. Department of Labor is actually two reports in one. This is why it’s possible for the unemployment rate increase even as the jobs increase. Over time, these two reports will tell the same story about the labor market, but over shorter periods they can send what appear to be conflicting signals.
Finally, earnings season is wrapping up with over 80 percent of the S&P 500 companies having reported. The numbers remain solid, although the numbers beating expectations and magnitude of the upside over expectations has narrowed a little bit over the past week. Over 73% of companies have exceeded profit (bottom line) targets, while 68% have topped revenue (top line) forecasts. EPS and revenue growth are tracking to 18% and 8% year-over-year according to LPL Research.
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Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC
**Standard Compliance Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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