“Tell Me Quando, Quando, Quando”
This song was made famous to Gen X by Murph and the Magictones in the movie The Blues Brothers and is a cover of an Englebert Humperdinck performance from 1969. Investors this week were asking the same question (translation: when, when, when) as Murph, Englebert, and others who have covered the original. However, rather than asking about a girl, investors were asking about tapering. I’m beginning to hate that word…along with ointment.
It was a relatively horrible week in the equity markets and the wild swings may continue throughout the summer. The second quarter will be coming to an end shortly and earnings season will begin shortly after. Just those two factors could test investors’ mettle over the next month, but we believe that things will settle down and it will become clear once again that valuations in the equity market are still in-line with historical averages. See my recent U.S. News and World Report column on the subject of market valuations here.
Here’s a recap of how the market did last week.
The Fed and Tapering
Fed Chairman Ben Bernanke stated that if the economic conditions continue to improve, it would make sense to begin reducing the Fed’s monthly purchases towards the end of 2013 and to be completely done with them by mid-2014. He went on to say that the mid-2014 point would be when the unemployment rate would be down close to 7%. Bernanke made it clear that ending the purchases of bonds would be conditional on meeting the Fed’s economic objectives. In fact, he emphasized that missing economic objectives could actually delay any tapering of the bond purchase program. He even went so far as to state that missing the objectives could actually increase purchases.
So the big unknown question remains “when.”
The Fed Chief’s best line was “Any slowing in the pace of purchases will be a kin to letting up a bit on the gas pedal as the car picks up speed, not to beginning to apply the brakes.”
It’s true, the days of Quantitative Easing may be coming to an end over the next year, but investors should look at this as a good thing. It means that things are getting better and the economy is able to better stand on its own. And if the Fed is saying that they will be waiting for the economy to meet objective, we are a long way from meeting those when the Fed is forecasting a 2.5% GDP for the year and we are on pace for a 1.9% GDP. Shaving 0.6% off the unemployment rate is not something you will just wake up to one day!
Finally, I want to put this recent pullback into perspective – The Standard and Poor’s 500 index (S&P 500) rose just over 23% from the mid-November low to the May 21st peak and it’s down about 4.5% from there. Remember, stocks do not move in a straight line and volatility is to be expected from time to time. Investors should stay focused on their financial plan and remember what the money is for.
Don’t get bent out of shape – panic is for the unprepared and selling airtime on CNBC.
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. 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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