Summer May Be Over – But the Rally Is Not
Don’t look now, but the NASDAQ is trading at its highest level since November of 2000. Granted, it’s still a long ways off from its all-time high, but this rally is worthy of notice. It’s also important to observe that there are three sectors still down about 50% from their all-time highs. These include the Standard & Poor’s (S&P) Tech sector down -49.6%, Telecom down -55%, and Financials down -59%.
As for the S&P 500 index… it’s now only about 10% off from its all-time high.
European Central Bank
I don’t want to pretend that there is no news on this topic; I’m just tired of it, so I’m going to skip the details for this week. Basically, European Central Bank (ECB) President, Mario Draghi, reached a consensus. He announced on Thursday that the ECB would begin unlimited bond purchases of sovereign debt. It seems they finally recognized that without near-term action, the euro crisis was set to enter a new and very dangerous phase.
Jobs & the Economy
As I anticipated in last week’s blog, Friday’s release of the unemployment rate was not only relatively weak (my words from last week) but it was WEAK. PERIOD.
The economy managed to create 96,000 net new jobs in August, according to Friday’s report by the government. That’s nearly 30,000 below the Bloomberg estimate. June and July were revised down by 41,000.
The unemployment rate dropped from 8.3% in July to 8.1% in August. HOWEVER, the reason the rate fell – a 119,000 drop in employment was overshadowed by a 368,000 decline in the labor force (likely due to discouraged job seekers giving up on their search).
THIS IS NOT A GOOD THING. It’s just simple math, but we’ll hear all about it in the political world for sure.
There were some positive economic reports last week that imply the U.S. recovery is still improving. Last week’s positive reports included strong auto sales and a modest uptick in service-sector activity. Unfortunately, this growth has not been fast enough to spur any considerable jump in hiring.
Our Thoughts
Our position remains that the U.S will not see a double dip recession so long as housing does not experience another downturn, and our domestic economy will continue to grow in the most modest of ways. 2012 will probably end up looking a lot like 2010 and 2011, where slightly weakening or sideways markets will give way to improvement over the Fall. Given that a little weakening or sideways action would take place from a now +14% YTD number on the S&P 500 suggest to us that the overall YTD return should be much better than people may think.
Finally, to put some things into perspective, let me reiterate some of the following YTD returns:
- The S&P 500 is UP 14.3% this year.
- The NASDAQ is UP OVER 20%!
- Small-caps, as measured by the Russell 2000, are UP 13%.
Most INVESTORS should be pretty happy right about now.
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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. 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. 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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