The Markets are YELLEN!!!
You never know what you don’t know. Larry Summers seemed all but a lock to become the next Fed Chairman to replace Ben Bernanke but under what seems like dwindling support among some key Democratic senators, he withdrew his name from consideration. The Dow Jones Industrial Average is up over 150 points on the news and the assumption is that the leading candidate is now Janet Yellen.
See below for more info on the market last week.
Fed Chairman
At this point, if the President chooses anyone other than Yellen it would come as a complete surprise – especially given her popularity. She is already a Vice-Chairwoman at the Fed, she is part of the team that created the current accommodative policies and frankly, she doesn’t piss people off like Summers has (or does). Plus, she will pass confirmation in the Senate since the Democrats will stick up for her against the few hard-nosed Republicans that will most likely obstruct just to obstruct.
Here’s a chart from the good folks at Bespoke. Saturday morning coffee, taking the dog for a swim and reading their Weekend Report is a ritual. 63% is pretty healthy.
Stocks are rallying because economic growth is picking up (see last week’s blog on ISM reports), there is optimism that the tapering that may take place has already been priced in and will not be a huge amount (we will know more on September 18th), and the recent massive swell in interest rates has the worst behind it.
Here’s a helpful chart from Charles Sherry showing the Standard & Poor’s 500 index (S&P 500) in blue and the yield on the 10-year Treasury bill in red, cross-referenced with the different QE’s that have taken place. The huge spike in 10-year yields are obvious in red.
Again from Bespoke is a graphic below on Sector Performance. Cyclical sectors took a hit in August but remain leaders YTD and have rebounded nicely from the end of August slump. Of particular note are the Consumer Discretionary, (an MWM Favorite in our ETF Core Portfolio), the Industrial and Health Care sectors. Technology is the real unfortunate cyclical sector for the year. Much of this has to do with the very heavy weighting Apple Computer holds in the indices. Investors and portfolio managers holding this sector in an equal weighted format are much happier than the holders of Market Cap Weighted indices.
Speaking of indices, the Dow Jones Industrial Average (DJIA) will be replacing Alcoa, Bank of America and Hewlett-Packard with Goldman Sachs, Visa and Nike on the 23rd of this month. Given that the DJIA is calculated using the prices of the 30 underlying stocks, Goldman and Visa (with prices hovering around the $160 and $180 mark) will impact the index since they will have the 2nd and 3rd highest prices after IBM. This makes the DJIA much more indicative of the financial sector than before.
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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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