Sour Grapes
Predicting anything about the economy is never easy and it has only gotten harder over the past few weeks. Clearly the market thinks there is a much higher chance of a recession than both the data and several economists that we like to follow are suggesting.
Most of the equity markets were down last week and seem to be off to a horrible start this week as of this writing. The Dow Jones Industrial Average (DJIA) lost -0.39% to finish at 11,240, the Standard & Poor’s 500 Index (S&P 500) lost -0.24% to finish at 1,174 but the Nasdaq Composite Index was a very slight winner gaining 0.02% to finish at 2,380. We’ll take it! The Russell 2000 Index, which tracks the performance of small capitalization stocks, lost -1.22% to finish at 683.
We are still worried that the stock market may cause a “crisis recession”. See our last two blogs for more thoughts on that. It has a lot to do with confidence – or the lack of it. Furthering the lack of confidence is the current undertone in Washington, DC. This is not a political statement, but our nation’s leaders do not seem to be working together – and whether or not that is true, the public does not seem to believe they are. One needs to look no further than the scheduling of the President’s speech on the same night as the republican debates. Dismissed as a “coincidence”, it certainly does not help the perception of the American people that there is little unity among our leaders. A lot needs to be done to fix jobs and if the leaders cannot, or do not, work together up through the 2012 elections, it could be difficult to reverse that perception (or reality).
Watch for economists across Wall Street to start trimming Gross Domestic Product (GDP) forecasts if there is no real enact-able plan that comes out of the President’s speech on Thursday night.
If you have been reading our blog for a while, you know one of the economic indicators we like to follow is the Institute for Supply Management (ISM) report on business for both manufacturing (referred to as the PMI report) and non-manufacturing (referred to as the NMI report). A reading of 50 or above generally means there is growth. The readings that came in last week and today show the August PMI decreasing from 50.9 to at 50.6 and the NMI increasing from 52.7 to 53.3.
So for right now we STILL think: Slowing growth yes, recession no.
Finally, as for the equity markets, well, we believe that there is tremendous value in equities – now more than ever because the bad news has created a bargain. Insiders are buying, corporate profits have surpassed expectations and balance sheets remain strong.
Stay invested unless your need for short-term liquidity has changed. That should be the only reason an investor is selling right now. If you can’t sleep at night, your asset allocation does not accurately reflect your risk tolerance and you should call your advisor to update your long-term planning and allocations.
Call us for help or if you have any questions.
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Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC
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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.
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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