She Just Got Her 2013 Year-End Statement

Emma Thompson knows how to party! This is a picture of her at the Golden Globes last weekend and it cracked me up. Finally there was something other than the teleprompter slog that had me more interested in a 3-month-old copy of Handyman Magazine than the awards show. It’s also possible that she just got her 2013 statements and decided to party despite the Dow being down -0.80% so far this year. Rewind a year ago and the Dow was up +4.0% on news that we averted the Fiscal Cliff. Things are so BORING now with no crisis and all this capital gains selling from a rocking 2013…

Hours and hours (and millions of advertising dollars) have been spent on CNBC over the past week sounding off on why the market has sold off. Remember, the past two years were unique in that the S&P 500 never saw a day where the YTD return number was negative for the year. Two straight years. That’s pretty incredible. Now the S&P 500 index has failed to have a single trading day close above the 2013 closing index level.

Time to panic?

If you said yes, get a grip. Here’s why the market has sold off:

1. Investors are catching their breath.
2. Portfolios are being rebalanced. Institutions and investors who rebalance annually have some equities to sell… a +30% run in equities will do that to ya!
3. Investors may be locking in profits.
4. Investors may be selling now to delay the tax bill for 16 months. (Tax on gains taken now is not due until April of 2015.)

Below are our two standard charts that review the previous week’s performance across the major benchmarks and for the ten sectors of the S&P 500 index.

The chart below shows how well each sector did vs. the S&P 500 (rather than its actual total return). Of note is that Utilities outperformed the S&P 500 by almost 2% points. Utilities were the worst performing sector in the S&P 500 in 2013 and they are a very defensive sector. Looks like either some rebalancing (see numbered list above) or knee jerk reaction to a poor start in the equity markets this year.

Earnings Season

I’m convinced my life is flying by because of quarterly earnings reports. It seems like every time I look up it’s a new quarter. When I was a kid, I had one data point in a year – summer vacation. Now I have four per year. I’m convinced that this contributes to life flying by. I’m going to blame mid-40’s weight gain on this too while I’m at it.

But it’s here…

Here is a chart from Bespoke Investment Group that shows the heavy reporting coming up this month. As you can see, there will be a lot to write about the week of Jan 24^th.

Economics

We’ve seen a few important economic releases this year:

1. The Unemployment Rate dropped to 6.7%
2. ISM Manufacturing came in with a reading of 57 vs. the expected 56.8. A number above 50 signifies expansion in manufacturing. This is a good reading
3. ISM Non-Manufacturing (AKA ISM Services) printed a reading of 53 vs. an expected reading of 54.5.
4. Non-Farm Payrolls came in showing 74,000 new jobs added last month vs. an expected 200,000 new jobs. So that kind of sucked.

The employment components embedded in both ISM readings improved month to month. That’s good for the overall employment outlook even though the march towards regaining the prior peak in employment during this recession has been VERY LONG relative to past recessions.

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Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA).

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.