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Usually Washington is worried about Wall Street…

By David B. Armstrong, CFA | Jul 23, 2011 | Weekly Market Commentary

It seems more and more like the opposite is true now.

While stocks finished higher on Friday, it was not enough to help offset losses from earlier in the week.  Despite some decent earnings news from companies that began reporting last week, the weak economic data and fear over the possible outcome (or lack of outcome) of debates over raising the debt ceiling dragged the market down over the course of the week.

Speaking of the debt ceiling, we believe that it will ultimately be raised and concessions will probably include some spending cuts but we don’t think that entitlement reform or tax increases will be part of the final deal.

All of the equity markets we track were losers last week.  The Dow Jones Industrial Average (DJIA) lost -1.40% to finish at 12,480, the S&P 500 Index lost -2.06% to finish at 1,316 and the Nasdaq Composite Index lost -2.45% to finish at 2,790. The Russell 2000 Index, which tracks the performance of small capitalization stocks, lost -2.79% to finish at 829.

We are not advocating taking any protective action on equity portfolios to hedge against the debt ceiling issue…yet.  Regardless of the recent market volatility over this issue, we think that markets are currently priced for a resolution rather than any other alternative.  Additionally, this could be fixed any day now and that could cause a rally. We just don’t think that at the end of the day the politicians will allow the country to default.

However, if it starts to look likely, we have a plan.

While the debt ceiling issue will continue to take center stage, earnings season has kicked off.  Thirty out of the 40 S&P 500 companies that have reported have beaten their estimates.  That’s actually some good news.  This week, 108 companies will report and that should provide us with a more robust earnings picture than last week.  Still, we’ll take any good news that comes our way.

This week I’ll be speaking at the Barron’s Conference at Washington DC’s National Harbor. It’s an invitation only conference for the top advisor teams across the nation as selected by Barron’s Magazine (based on assets under management, quality of practice and revenue).  It will be interesting to hear from some of the industry’s other leading advisor teams on the above subject and I’ll be looking forward to sharing that insight with you next week.

Call us for help or if you have any questions.

Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC

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**Standard Compliance Disclosures
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 companies with lower price-to-book ratios and lower forecasted growth values.

 

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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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