Weekly Update – August 22, 2011
Driven By Fear
Fear that the economy may be headed for another recession drove markets to their fourth straight session of losses last week. Mounting anxiety has been easy to see in Wall Street’s key measure of volatility, the VIX*, which soared 35% Thursday following a rash of downbeat economic reports. The Volatility index spiked to a close of 42.7 as all three major U.S. stock indexes plummeted. A VIX reading higher than 30 is considered an indicator of heightened fear.[1]
Both stock indexes and the VIX have seesawed in recent trading sessions, and the VIX itself is up over 140% year-to-date.[2] The wild intraday swings and day-to-day movements have been too much for many investors to handle, and many it seems, are taking the ‘sell first, ask questions later’ approach. Is taking such an approach wise?
Admittedly, no one can foretell the future, and past performance cannot be relied upon to predict future results. Even so, when we look back upon the 15 trading days since 1950 in which the S&P 500 Index was down -6% or more in one day (We experienced a 6.66% decline on August 8th), the performance of the index for the one year that followed averaged 21.25%.[3] For this reason and others, we do not think that now is the time to act rashly by altering your long term investment strategy.
Regarding the economy itself, many analysts believe it will continue to grow, although slowly. Pointing to an increase in an index of leading economic indicators that suggests the economy is expanding slowly, Jonathan Golub, chief U.S. market strategist for UBS commented Thursday, “The market is thinking that we’re going into a recession, but the data is telling you that we’re not.”
We understand that fear can be contagious, but we urge you not to let yourself be overtaken by it. While stocks are currently experiencing a period of volatility, we believe that investors who remain committed to their long-term investment plan may be rewarded over time.
ECONOMIC CALENDAR: Tuesday – New Home Sales Wednesday –Durable Goods Orders, EIA Petroleum Status Report
Thursday – Jobless Claims
Friday – GDP, Consumer Sentiment, Ben Bernanke Speaks at 10:00AM Eastern
| Data as of 08/19/2011 |
1-Week |
YTD |
1-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 |
-4.69 |
-10.6 |
4.45 |
-2.75 |
-0.33 |
| Dow |
-4.01 |
-6.56 |
5.32 |
-0.99 |
0.56 |
| NASDAQ |
-6.62 |
-11.7 |
7.48 |
1.64 |
2.54 |
| MSCI EAFE |
-5.16 |
-12.2 |
1.54 |
-3.00 |
1.64 |
| 10-year Treasury Note (Yield Only) |
2.24 |
NA |
2.58 |
4.84 |
4.84 |
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
HEADLINES:
U.S. benchmark oil prices have tumbled since early May, but drivers—and the economy—have yet to feel the full benefit. While crude-oil futures are down 38%, the average price of gas at the pump is down just 9%.[4]
Japan is ready to take action against a further surge in the yen, including market intervention, after the safe-haven Japanese currency hit a post-war record high. Because a strong yen hurts Japanese exporters, the nation’s main economic engine, Japan stepped into the foreign exchange market earlier this month to dump yen for dollars, and Tokyo has signaled that it may do so again.[5]
Libyan rebels raced into the capital city of Tripoli on Sunday and moved close to the center with little resistance as Moammar Gadhafi’s defenses collapsed and his regime appeared to be crumbling fast.[6]
Bank of America Corp. is cutting 3,500 employees this quarter and working on plans that will ax several thousand more jobs, according to The Wall Street Journal and The New York Times, which cited people familiar with the situation. The reports said job cuts at the biggest U.S. bank by assets might exceed 10,000, or about 3.5 percent of its work force.[7]
QUOTE OF THE WEEK:
“Always bear in mind that your own resolution to succeed is more important than any other.” — Abraham Lincoln
RECIPE OF THE WEEK:
French-Glazed Chicken
From: Better Homes and Gardens
Ingredients:
2 pounds meaty chicken pieces
1/4 cup French salad dressing
2 tablespoons peach jam, large pieces cut up
1 tablespoon water
1 teaspoon dried minced onion or 2 tablespoons finely chopped onion
Directions:
1) Remove skin from chicken, if desired. Place chicken pieces in a 13x9x2-inch baking pan.
2) For glaze, stir together the salad dressing, peach jam, water, and onion. Brush the glaze lightly over the chicken.
3) Bake, uncovered in a 375 degree F oven for 45 to 55 minutes or until chicken is tender and no longer pink. Brush with remaining glaze; bake 5 minutes more. Makes 4 servings.
GOLF TIP OF THE WEEK:
To improve putting, understand the grain.
Most golfers can gauge the slope and speed of a green, but typically fail to determine grain. Check for grain at the cup. Usually, one side of the cup will be ruffled and the other, smooth. Toward the smooth side is the direction of the grain. Uphill putts into the grain will have to be struck more firmly; downhill putts with the grain need a softer touch.
HEALTH TIP OF THE WEEK:
Handling Sudden Stress
Stress can happen in many different ways, but when we are instantly plunged into a crisis, it is important to manage stress properly so we can think clearly. First, try to put the situation in perspective. Ask yourself; will this matter in a year? If the problem demands your attention, try coming up with a plan by listing possible solutions. Finally, accept that while some circumstances are beyond our control, we always have a choice in how we react. Try to stay calm and accept support from others.
GREEN TIP OF THE WEEK:
Think About Packaging
Besides the production and waste of the goods themselves, the packaging of products is hugely wasteful. While shopping, try to look for products that use less packaging than others. Bulk products are often known for this. Avoid styrofoam products and packaging as much as possible, because of the harmful pollutants used to produce them.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
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Past performance does not guarantee future results.
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*Chicago Board Options Exchange Market Volatility Index (VIX) – is a popular measure of the implied volatility of S&P 500 index options. It represents one measure of the market’s expectation of stock market volatility over the next 30 day period.
[1] http://money.cnn.com/2011/08/18/markets/VIX_fear_index/index.htm
[3] www.ftportfolios.com Performance is price return only. The historical performance figures for the S&P 500 Index are for illustrative purposes only and are not intended to imply or guarantee future performance. These returns were the result of certain market factors and events which may not be repeated in the future. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The index cannot be purchased directly by investors.
