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Excellency, Fiddlesticks, My Name’s Fred.


It’s a great line by the Bishop from Caddyshack, and it came to me as I spent some time catching up on market research over the weekend.  The market continues to rally to new highs, but according to a recent survey conducted by Bespoke Investment Group, the number of investors who think the market will be lower in a month is greater than those who think it will be higher.  The major market indices extended their winning streak to four weeks in a row and set new highs in the process, but much like the full run of this current bull market, there seems to be plenty of skepticism.

The rally has not been confined to large-cap stocks. The Russell 2000 Index, which measures smaller-company performance, also finished at a new high and is up 17.3% for the year.

Here’s a recap of how the market did last week.

Weekly Market Returns 5-20-13

A Quick Update on Sector Performance

There are 10 sectors within the Standard and Poor’s 500 (S&P 500) index and they are all up for the year.  In fact, on a year-to-date basis, the WORST performing sector is Materials, which is up +8.6%.  (Remember from above the S&P 500 is up 16.9%).  The sectors that are up more than the S&P 500 are Consumer Staples (+18.9%), Consumer Discretionary (+20.7%), Financials (+20.8%) and finally, Health Care (+22.0%).   What’s interesting to note here is that 2 of the 4 sectors outperforming the overall S&P 500 are considered defensive sectors – Consumer Staples and Health Care.  However, for the current quarter, these defensive sectors have lost some steam and have given way to Consumer Discretionary and Financials.  The first quarter was a great run for those people who were invested defensively, but the tide has turned back towards the cyclical sectors that traditionally grow when the economy is growing.

Earnings Season is Over

Bespoke Investment Group follows corporate earnings very closely. They publish a chart that shows the spread between companies guiding future earnings higher or lower on a percentage basis.  Up to this quarter, the spread has been negative for the six previous quarters – meaning that there are more companies stating they will earn less in the upcoming quarter than the same quarter a year prior.

With earnings season now complete for the first quarter of 2013, companies posting negative guidance outnumbered companies posting positive guidance by 3.1 percentage points, making it 7 quarters of a negative spread in a row…it just seems like companies are unwilling to forecast anything positive.

On a better note, the fear of overstating things on the corporate front may actually be one of the things holding the bull market back a little bit. The fact of the matter remains that companies have actually ended up posting solid numbers over the past seven quarters where they were guiding lower expectations.

There were 2,224 companies that reported earnings for the first quarter.  Of those companies, 51.7% reported revenue that was higher than what they forecasted and 57.7% beat their expected earnings per share, which was the weakest showing for earnings in the current bull market.  Alas, the market hit new highs over the same time.  It just goes to reinforce that investing based on sentiment may not yield great results.

Our opinion has been, and remains, unchanged – investors who are fully invested remain that way and investors with cash positions tactically invest portions of that cash position on any market pullbacks.

Please call or email with questions.

Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA). Securities offered through LPL Financial.  Member FINRA/SIPC.  Monument Advisory Group and Monument Wealth Management are separate entities from LPL Financial.

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 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values.  The 2, 10 and 30 year Treasury is simply the yield at the close of the day.

(1)      West Texas Intermediate crude spot price is as of end of week.

(2)      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.

David B. photo

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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