WEEKLY QUOTE
“To
handle yourself, use your head; to handle others, use your
heart.” –
Donald A. Laird
MONTHLY TIP
See
that you are properly diversified for 2011. Diversifying your
portfolio across different asset classes may provide more
insulation against volatility and help you even out your returns.
MONTHLY
RIDDLE
Add
missing vowels to these three trios of letters to get the
six-letter names of three different countries: PNM, MXC, KWT
Last month’s riddle:
The English language has a noun with three consecutive double letters in it. The word is 10 letters long, and it describes a job involving math. What is this word?
The English language has a noun with three consecutive double letters in it. The word is 10 letters long, and it describes a job involving math. What is this word?
Last month’s answer:
Bookkeeper.
THE
MONTH IN BRIEF
December lived up to its promise as one of the better months of the year for stocks, with the S&P 500 gaining 6.53%.1 It was a strangely quiet time on Wall Street, and the biggest news item of the month was good news for investors. It didn’t take long for President Obama and Congressional Republicans to reach a tax compromise, one with demonstrable benefits for all Americans. In December we learned that the jobless rate had increased; however, by the end of the month, initial claims were at a two-year low. Home sales improved, and so did retail sales. Optimism was back, or at least pessimism did not reign.
December lived up to its promise as one of the better months of the year for stocks, with the S&P 500 gaining 6.53%.1 It was a strangely quiet time on Wall Street, and the biggest news item of the month was good news for investors. It didn’t take long for President Obama and Congressional Republicans to reach a tax compromise, one with demonstrable benefits for all Americans. In December we learned that the jobless rate had increased; however, by the end of the month, initial claims were at a two-year low. Home sales improved, and so did retail sales. Optimism was back, or at least pessimism did not reign.
DOMESTIC
ECONOMIC HEALTH
Two stories dominated the headlines in December: the bipartisan tax accord reached in Washington D.C., and the enthusiasm of shoppers at the malls.
Two stories dominated the headlines in December: the bipartisan tax accord reached in Washington D.C., and the enthusiasm of shoppers at the malls.
There
was no knock-down, drag-out fight on Capitol Hill when it came to
resolving federal tax issues.
On December 6, President Obama announced a compromise to extend
the Bush-era tax cuts for all Americans (including the
wealthiest) through 2012. Some of his fellow Democrats howled in
protest. Nevertheless, the 2010
Tax Relief Act was signed into law on December 17 after
overwhelming passage in the House and Senate. The new tax pact
cut (employee) payroll taxes by 2% for 2011 and permitted
businesses to expense 100% of their investments in 2011. It
extended the college
tuition tax credit and federal unemployment insurance; it
restored the estate tax at 35% with a $5 million individual
exemption. In the estimate of the non-partisan Tax Policy Center,
the deal improves the after-tax incomes of the wealthiest 20% of
Americans by 5.7% and the poorest 20% of Americans by 3.7% (that
is, compared to if the EGTRRA and JGTRRA cuts had lapsed).2,3
All
month, nightly news broadcasts spread the message that consumers
were spending freely again. While these accounts were often
anecdotal, the numbers on hand were encouraging. The Commerce
Department reported a 0.8% gain in retail sales for November –
the fifth straight monthly increase. Department store sales were
up 2.8% in November, representing the biggest monthly gain in two
years. Online sales improved 13.0% this past holiday season,
according to Internet tracking firm comScore. At the car lots,
J.D. Power & Associates said December auto sales were
“significantly beating expectations” and forecast
year-over-year sales volume to improve by 11.5% for 2010.4,5,6
Other
consumer signals flashed, hinting that things were looking up.
Initial jobless claims fell to a low unseen since July 2008
during the week ending December 25. Consumer spending rose 0.4%
and consumer incomes rose 0.3% in November while the federal
government’s Consumer Price Index ticked up but 0.1% (as did
the core CPI).7,8,9
There
were plenty of other news items. The Labor Department informed us
that unemployment had hit 9.8% in November. The Institute for
Supply Management’s manufacturing index improved in December to
57.0 from 56.6; its service sector index showed improvement for
the month of November, going from 54.3 to 55.0. The Conference
Board’s index of leading economic indicators had risen 1.1% in
November for its best month since March. The Reuters/University
of Michigan consumer sentiment survey improved a bit to
74.6.10,11,12,13,14
GLOBAL
ECONOMIC HEALTH
Here’s a news flash: Eurozone inflation leapt 2.2% in December, exceeding the European Central Bank’s inflation target for the first time in two years. (Barclays Capital analysts have forecast the EU inflation rate to reach 2.5% by February.) However, core EU inflation stayed close to 1% and unemployment in the EU’s biggest economy – Germany – stayed near 7%. The Markit Eurozone Purchasing Manufacturers Index climbed to 57.1 in December, close to the 46-month high set last April.15,16
Here’s a news flash: Eurozone inflation leapt 2.2% in December, exceeding the European Central Bank’s inflation target for the first time in two years. (Barclays Capital analysts have forecast the EU inflation rate to reach 2.5% by February.) However, core EU inflation stayed close to 1% and unemployment in the EU’s biggest economy – Germany – stayed near 7%. The Markit Eurozone Purchasing Manufacturers Index climbed to 57.1 in December, close to the 46-month high set last April.15,16
China’s
official PMI dropped to 53.9 for December, while South Korea’s
key PMI reached that same mark. Taiwan’s government revised its
2010 GDP estimate in December to 4.8%, much lower than the 10.0%
it initially forecast for its export-rooted economy. India’s
PMI slipped a bit to 56.7 in December from 58.4 in November, but
its November exports increased by 26.5%.17,18,19
WORLD
MARKETS
Assorted benchmarks logged some nice monthly gains. In Europe, Austria’s ATX rose 11.4% last month; Ireland’s ISEQ gained 8.8%, Russia’s RTSI advanced 7.8% and Spain’s IBEX rose 6.4%. The FTSE 100 gained 6.7% in December, while the CAC-40 rose 5.4% and the DAX moved north 3.4%. Turning to the Asia Pacific markets, we see the following December performances: Sensex, +5.1%; Australia All Ordinaries, +3.6%; Nikkei 225, +2.9%; Singapore STI, +1.4%; Hang Seng, +0.1%. Only three indices of consequence went south in December: the Shanghai Composite (-0.4%), the IPSA in Chile (-0.6%) and the Caracas Index in Venezuela (-1.2%).20
Assorted benchmarks logged some nice monthly gains. In Europe, Austria’s ATX rose 11.4% last month; Ireland’s ISEQ gained 8.8%, Russia’s RTSI advanced 7.8% and Spain’s IBEX rose 6.4%. The FTSE 100 gained 6.7% in December, while the CAC-40 rose 5.4% and the DAX moved north 3.4%. Turning to the Asia Pacific markets, we see the following December performances: Sensex, +5.1%; Australia All Ordinaries, +3.6%; Nikkei 225, +2.9%; Singapore STI, +1.4%; Hang Seng, +0.1%. Only three indices of consequence went south in December: the Shanghai Composite (-0.4%), the IPSA in Chile (-0.6%) and the Caracas Index in Venezuela (-1.2%).20
The
much-watched MSCI World and Emerging Markets Indexes also had
healthy gains last month. In U.S. dollar terms, the World
advanced 7.25% and the Emerging Markets rose 7.02%.21
COMMODITIES
MARKETS
Gold cracked the $1,400 ceiling in December, rising 2.61% to settle at $1421.10 per ounce on December 31. Copper posted a 16.13% monthly gain, and silver kept climbing to reach a 30-year high (it gained 83.7% for the year). Crude oil pulled off an 8.64% December advance, with futures finishing 2010 at $91.38 a barrel. The Thomson Reuters/Jefferies CRB index gained 10.0% in December, helped by huge annual gains for silver (see above), cotton (+92%), corn (+52%), and coffee hitting a 13-year peak. The U.S. Dollar Index sank 2.9% for the month.22,23,24,25
Gold cracked the $1,400 ceiling in December, rising 2.61% to settle at $1421.10 per ounce on December 31. Copper posted a 16.13% monthly gain, and silver kept climbing to reach a 30-year high (it gained 83.7% for the year). Crude oil pulled off an 8.64% December advance, with futures finishing 2010 at $91.38 a barrel. The Thomson Reuters/Jefferies CRB index gained 10.0% in December, helped by huge annual gains for silver (see above), cotton (+92%), corn (+52%), and coffee hitting a 13-year peak. The U.S. Dollar Index sank 2.9% for the month.22,23,24,25
REAL
ESTATE
Had the market found a bottom? Was a rebound occurring? Or was a double-dip coming? Commenting on the October S&P/Case-Shiller home price index data, Standard & Poor’s index committee chair David Blitzer said last month with regard to home prices that “[it] looks like a double-dip is pretty much on the way, if not already here.” In the October edition, home prices dropped 1.3% and fell for the third straight month.26
Had the market found a bottom? Was a rebound occurring? Or was a double-dip coming? Commenting on the October S&P/Case-Shiller home price index data, Standard & Poor’s index committee chair David Blitzer said last month with regard to home prices that “[it] looks like a double-dip is pretty much on the way, if not already here.” In the October edition, home prices dropped 1.3% and fell for the third straight month.26
However,
there were reasons for optimism. In November, existing home sales
were up 5.6%, new home sales up 5.5% and housing starts up 3.9 %.
Pending home sales rose by 3.5% in November after a 10.4% leap in
October.27,28,29
Comparing
and contrasting mortgage rates in the December 2 and December 30
surveys from Freddie Mac, we see home loans growing more
expensive. Average interest rates for 30-year conventional home
loans went from 4.46% to 4.86%. Average rates for 15-year FRMs
rose from 3.81% to 4.20%. The rates on 5-year ARMs went from
3.49% to 3.77% and rates on 1-year ARMs barely moved, going from
3.25% to 3.26%.30
LOOKING
BACK…LOOKING FORWARD
The three major U.S. indices all gained at least 5% last month, and the Russell 2000 ended the year with a 7.79% December advance (it went +25.31% for 2010). Historically, December has often been a good month for stocks – since 1928, the Dow has gained more than 5% in the last month of the year on ten occasions. December 2010 went into the books as the best December for the Dow in seven years.1,31
The three major U.S. indices all gained at least 5% last month, and the Russell 2000 ended the year with a 7.79% December advance (it went +25.31% for 2010). Historically, December has often been a good month for stocks – since 1928, the Dow has gained more than 5% in the last month of the year on ten occasions. December 2010 went into the books as the best December for the Dow in seven years.1,31
| % CHANGE |
2010
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+11.02
|
+5.19
|
+11.02
|
+0.73
|
NASDAQ
|
+16.91
|
+6.19
|
+16.91
|
-0.74
|
S&P
500
|
+12.78
|
+6.53
|
+12.78
|
-0.47
|
| REAL YIELD |
12/31
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
1.00%
|
1.48%
|
2.06%
|
4.03%
|
Sources: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 12/31/101,32,33,34
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
Will
optimism prevail this month on Wall Street? On the first day of
trading in 2011, you had the S&P 500 closing at its highest
level since September 3, 2008, the Dow to its highest mark since
August 28, 2008 and the NASDAQ at its highest close since
December 26, 2007. The December jobs report is shaping up to be
the first big challenge to stocks this month; if it shows an
improvement, it might convince more investors that the economy is
moving in a positive direction. Some Wall Street analysts are
looking at 2011 very positively: UBS Wealth Management thinks the
S&P 500 will top 1,350 by the end of the year, and Citigroup
thinks the index will reach 1,400. (Did you know that last month
was the best December for the S&P 500 since 1991?)35
UPCOMING
ECONOMIC RELEASES:
The schedule for the rest of the month is as follows: the December unemployment report (1/7), November wholesale inventories (1/11), the Federal Reserve’s January Beige Book (1/12), the December PPI (1/13), the December CPI, December retail sales and industrial output, November business inventories and the initial January University of Michigan consumer sentiment survey (1/14), December housing starts and building permits (1/19), the Conference Board’s December leading indicator index and December existing home sales (1/20), the November Case-Shiller home price index and the Conference Board’s latest poll of consumer confidence (1/25), December new home sales and a Fed interest rate decision (1/26), December durable goods orders and November pending home sales (1/27), the final December University of Michigan consumer sentiment survey and the first estimate of 4Q 2010 GDP(1/28), and lastly December personal spending and personal income (1/31).
The schedule for the rest of the month is as follows: the December unemployment report (1/7), November wholesale inventories (1/11), the Federal Reserve’s January Beige Book (1/12), the December PPI (1/13), the December CPI, December retail sales and industrial output, November business inventories and the initial January University of Michigan consumer sentiment survey (1/14), December housing starts and building permits (1/19), the Conference Board’s December leading indicator index and December existing home sales (1/20), the November Case-Shiller home price index and the Conference Board’s latest poll of consumer confidence (1/25), December new home sales and a Fed interest rate decision (1/26), December durable goods orders and November pending home sales (1/27), the final December University of Michigan consumer sentiment survey and the first estimate of 4Q 2010 GDP(1/28), and lastly December personal spending and personal income (1/31).
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*Registered Representative and Financial Advisor of Park Avenue Securities LLC PAS.
Securities products/services and advisory services offered through PAS a registered Broker-dealer and investment advisor.
Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY.
PAS is an indirect wholly owned subsidiary of Guardian.
Wealth Design Group is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC.
This
material was prepared by Peter Montoya Inc., and does not
necessarily represent the views of the presenting party, nor
their affiliates. This information should not be construed as
investment, tax or legal advice. The Dow Jones Industrial Average
is a price-weighted index of 30 actively traded blue-chip stocks.
The NASDAQ Composite Index is an unmanaged, market-weighted index
of all over-the-counter common stocks traded on the National
Association of Securities Dealers Automated Quotation System. The
Standard & Poor's 500 (S&P 500) is an unmanaged group of
securities considered to be representative of the stock market in
general. It is not possible to invest directly in an index. NYSE
Group, Inc. (NYSE:NYX) operates two securities exchanges: the New
York Stock Exchange (the “NYSE”) and NYSE Arca (formerly
known as the Archipelago Exchange, or ArcaEx®, and the Pacific
Exchange). NYSE Group is a leading provider of securities
listing, trading and market data products and services. The New
York Mercantile Exchange, Inc. (NYMEX) is the world's largest
physical commodity futures exchange and the preeminent trading
forum for energy and precious metals, with trading conducted
through two divisions – the NYMEX Division, home to the energy,
platinum, and palladium markets, and the COMEX Division, on which
all other metals trade. The Austrian Traded Index (ATX) is the
most important stock market index of the Wiener Börse and the
largest trading place in the Austrian economy. The ISEQ 20 is a
benchmark stock market index composed of companies that trade on
the Irish Stock Exchange. The RTS Index (RTSI) is an index of 50
Russian stocks that trade on the RTS Stock Exchange in Moscow.
The IBEX 35 is the benchmark stock market index of the Bolsa de
Madrid, Spain's principal stock exchange. The FTSE 100 Index is a
share index of the 100 most highly capitalized companies listed
on the London Stock Exchange. The CAC-40 Index is a narrow-based,
modified capitalization-weighted index of 40 companies listed on
the Paris Bourse. The DAX 30 is a Blue Chip stock market index
consisting of the 30 major German companies trading on the
Frankfurt Stock Exchange. The BSE Sensex or Bombay Stock Exchange
Sensitive Index is a value-weighted index composed of 30 stocks
that started January 1, 1986. The
S&P/ASX All Ordinaries Index represents the 500 largest
companies in the Australian equities market. Nikkei
225 (Ticker: ^N225) is a stock market index for the Tokyo Stock
Exchange (TSE). The Nikkei average is the most watched index of
Asian stocks. The Straits Times Index (STI) is a market
value-weighted stock market index based on the stocks of 30
representative companies listed on the Singapore Exchange. The
Hang Seng Index is a free-float capitalization-weighted index of
selection of companies from the Stock Exchange of Hong Kong. The
Shanghai Stock Exchange Composite Index is a
capitalization-weighted index that tracks the daily price
performance of all A-shares and B-shares listed on the Shanghai
Stock Exchange. The IPSA Index is a Total Return Index and is
composed of the 40 stocks with the highest average annual trading
volume in the Santiago Stock Exchange (Bolsa de Comercio de
Santiago). The Caracas Stock Exchange or Bolsa de Valores de
Caracas (BVC) is a stock exchange located in Caracas, Venezuela.
The
MSCI World Index is a free-float weighted equity index that
includes developed world markets, and does not include emerging
markets. The MSCI Emerging Markets Index is a float-adjusted
market capitalization index consisting of indices in more than 25
emerging economies. The US Dollar Index measures the performance
of the U.S. dollar against a basket of six currencies. Additional
risks are associated with international investing, such as
currency fluctuations, political and economic instability and
differences in accounting standards. All information is believed
to be from reliable sources; however we make no representation as
to its completeness or accuracy. All economic and performance
data is historical and not indicative of future results. Market
indices discussed are unmanaged. Investors cannot invest in
unmanaged indices. The publisher is not engaged in rendering
legal, accounting or other professional services. If assistance
is needed, the reader is advised to engage the services of a
competent professional.
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