MONTHLY TIP
Many folks ignore big
risks in their financial plan, often because they believe
“nothing bad will happen to them” (or their families). This
sort of denial doesn’t come with immunity – your faith or
naiveté won’t protect you. If the financial effect of a
premature death or injury is likely to be insurmountable, that’s
where insurance should come in -- to transfer that big risk to a
reliable company, for a relatively small but manageable cost,
periodic insurance premiums.
MONTHLY
RIDDLE
Take a left-handed glove
and turn it inside out. Which of your hands will it now fit –
the left, or the right?
Last month’s riddle:
You
enter a college classroom where there are 13 22-year-olds, 10
21-year-olds and 14 20-year-olds. How many people are in the
room?
Last month’s answer: 38
people (you and the 37 people who are already in the room).
THE
MONTH IN BRIEF
Hazards
remained on the horizon last month, but that didn’t stop stocks
from advancing – the S&P 500 rose 1.98% in August.
Anticipation of central bank action helped, and so did more good
news from the housing sector. Headlines from Europe brought
anxieties, but not alarms. Gold touched a five-month high and
retail gas prices flirted with the $4 mark. Stock indices around
the world logged monthly gains as bullish sentiment prevailed.
Quite simply, August defied expectations – ending up as a
pleasant surprise for an uneasy Wall Street.1,2
DOMESTIC
ECONOMIC HEALTH
It
is widely noted that consumer spending accounts for about
two-thirds of GDP. So the 0.4% rise in the category for July –
the biggest leap in five months – was welcome after a
flat June. Personal incomes also rose 0.3% for the second
consecutive month. With the economy expanding 1.7% from
April-June by the government’s revised estimate, analysts hoped
that the July increase signaled a pickup in growth. Another hint
that it might: retail sales had soared 0.8% in July after falling
0.7% for June. They hadn’t advanced since March.3,4
Did
growth return to the manufacturing sector in August? According to
the Institute for Supply Management’s manufacturing PMI, no.
Last month’s PMI was 49.6, down from July’s 49.8 mark. ISM’s
service sector PMI continued to stay above contraction territory,
having come in at 52.6 in July after a 52.1 June reading. July’s
durable goods report was only mildly positive: orders were up
4.2% in the big picture, but down 0.4% with transportation orders
subtracted.5,6,7
Consumer
inflation (as measured by the Consumer Price Index) was flat in
July, as it had been in June. Core CPI did rise 0.1%. Annualized
inflation was running at 1.4%, the smallest yearly gain recorded
since November 2010. Producer prices, however, advanced by 0.3%
in July, more than in any month since February.8,9
The
jobless rate had ticked up to 8.3% in July and gas prices had
taken their toll on household budgets, so consumer confidence
fell – the Conference Board’s August poll showed it at the
lowest level since November
(60.6). Consumer sentiment (a slightly different animal)
improved, however – at least according to the University of
Michigan’s August survey, which hit a 3-month peak of 74.3.3,10
Wall
Street watched and waited for some sort of clue from the Federal
Reserve. Could QE3 be ahead? Did the Fed think the economy would
be okay without it? A strong signal flashed on August 31, when
Fed Chairman Ben Bernanke noted at the central bank’s annual
Wyoming symposium that the state of the economy was “far from
satisfactory” and that the Fed “should not rule out”
easing. That comment led some investors to believe further action
was coming in fall.11
GLOBAL
ECONOMIC HEALTH
The
good news out of Europe in August? Yields on 10-year notes from
Spain and Italy respectively fell below 7% and 6%, and Spain
agreed to set up a “bad bank” to clean up toxic assets as a
condition of its rescue loan. The bad news? It appeared Spain
might need even more than €100 billion in rescue funds from the
European Union, actual bond buying by the European Central Bank
appeared no better than a fall prospect, and Greece asked the EU
for more time to manage its austerity cuts with France and
Germany firmly against an extension. The European Financial
Stability Facility (the EU’s bailout fund) would presently
expand into the permanent European Stability Mechanism –
provided that Germany’s high court didn’t declare the ESM
illegal. Some analysts felt that the ECB would lower its
benchmark interest rate 25 basis points to 0.50% in early
September. Euro area statistics showed inflation at 2.6% and
unemployment at 11.3% in July.12,13,14,15,16,17
A
global manufacturing slump continued in August. China’s
official PMI dropped below 50 for the first time in nine months;
the nation’s Markit HSBC PMI was already under that figure.
(China did not cut interest rates in August, as it had in June
and July.) Taiwan’s PMI hit its lowest level since November,
and South Korea’s manufacturing index was below 50 for a third
straight month. On the other hand, the U.S., the EU and Great
Britain saw PMIs rise – although while the Markit PMI for the
eurozone rose 1.3% off a 3-year low of 44.0, it was still well
into contraction territory. Manufacturing PMIs in Indonesia and
India showed expansion (India’s benchmark PMI has been above 50
for more than three years).18
WORLD
MARKETS
Spain’s
IBEX 35 staged a 10.13% rebound in August, and the FTSE Italia
All Share rose 8.03%. While the major European indices didn’t
match those gains, they were also higher for the month – FTSE
100, +1.35%; CAC 40, +3.69%; DAX, +2.93%. In the Americas,
Brazil’s Bovespa (+1.72%), Argentina’s MERVAL (+0.99%) and
Canada’s TSX Composite (+2.44%) rallied. In the Asia Pacific
region, the Hang Seng (-1.59%) and Shanghai Composite (-2.67%)
were August losers, but other benchmarks were winners:
Australia’s All Ordinaries (+1.16%) and Japan’s Nikkei 225
(+1.67%). While the MSCI World Index rose 2.29% in August, the
MSCI Emerging Markets Index slipped 0.54%.19,20
COMMODITIES
MARKETS
Aside
from two notable retreats (coffee at -5.53% and natural gas at
-12.78%), most key commodities did well in August. NYMEX crude
rose 9.55%, ending the month at $96.47 a barrel. RBOB gasoline
climbed 7.15%. At the pump, August also brought a 9.40% jump in
the price of regular unleaded ($3.83 on August 31). Heating oil
rose 11.66%. Silver had a great month (+12.64%). Gold (+4.79%)
and copper (+1.16%) also posted gains, gold rising to a 5-month
peak on August 31 and settling at $1,687.60 an ounce. Cotton rose
8.30% while corn (+0.06%) and wheat (+0.79%) managed small
advances. The U.S. Dollar Index pulled back 1.81% last month.2
REAL
ESTATE
Existing
home sales were up 2.3% last month, with the pace 10.4% better
than a year ago; the National Association
of Realtors also reported a 2.4% rise in pending home sales in
August (they were 12.4% above year-ago levels). June’s
S&P/Case-Shiller Home Price index showed an overall annual
gain (+0.5%) for the first time in 20 months. New home sales rose
3.6% in August and were up 25.3% annually.21,22,23
Mortgage
rates finished August higher. Freddie Mac noted the following
movements in interest rate averages between its July 26 and
August 30 surveys:
30-year FRMs, 3.49% to 3.59%; 15-year FRMs, 2.80% to 2.86%;
5/1-year ARMs, 2.74% to 2.78%. The exception: average rates on
1-year ARMs decreased from 2.71% to 2.63%.24
LOOKING
BACK…LOOKING FORWARD
When
was the last time that the Dow, S&P and NASDAQ all gained in
August? 2009. Speaking of gains and positivity, stocks advanced
for the seventh month out of the past eight.1,2,25
%
CHANGE
|
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+7.15
|
+0.63
|
+12.72
|
+5.11
|
NASDAQ
|
+17.73
|
+4.34
|
+18.90
|
+13.33
|
S&P
500
|
+11.85
|
+1.98
|
+15.40
|
+5.35
|
REAL
YIELD
|
8/31
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
-0.68%
|
0.18%
|
2.34%
|
3.10%
|
Sources:
cnbc.com, bigcharts.com, treasury.gov - 8/31/121,26,27,28
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into
directly.
These
returns do not include dividends.
As
September starts, there are analysts wondering if a correction
might soon occur. At any indication of possible Fed or ECB bond
buying (overt or subtle), stocks have moved north. The thinking
is that the market may be heading for a disappointment: if
signals of decisive action from the ECB or the Fed seem to wane
and Spain’s debt crisis worsens, appetite for risk might
swiftly decline. Throw in any complications with Greece and
another round of indicators that might further confirm economic
deceleration in China (its latest set of leading indicators was
its weakest in 43 months) and you could see a hasty retreat for
stocks. Historically, September has been the S&P 500’s
poorest month, with an average 0.65% loss for the index since
1945. An exception occurred in 2010 when Ben Bernanke used the
Jackson Hole Fed symposium to talk about what would become known
as QE2 – that led to the best September for stocks in the
post-WWII era. September could surprise us as long as our economy
continues to make progress and headlines from China and Europe
don’t startle us.15
UPCOMING
ECONOMIC RELEASES
Across the rest of September, here is the data stream and
schedule of notable events: a critical ECB policy meeting and the
ISM service sector index for August (9/6), the August employment
report (9/7), a German constitutional court ruling on the
legality of the European Stability Mechanism and July wholesale
inventories (9/12), a Fed policy announcement and the August PPI
(9/13), August retail sales figures and industrial output, July
business inventories, the University of Michigan’s preliminary
September consumer sentiment survey and the August CPI (9/14),
September’s NAHB housing market index (9/18), August existing
home sales, housing starts and building permits (9/19), the
August edition of the Conference Board Leading Economic
Indicators index (9/20), the Conference Board’s September
reading of consumer confidence, the July Case-Shiller home price
index and July’s FHFA housing price index (9/25), August new
home sales (9/26), August pending home sales and durable goods
orders and the government’s final estimate of Q2 GDP (9/27),
and then August personal spending and the University of
Michigan’s final consumer sentiment survey for the month
(9/28).
*Registered Representative and Financial Advisor of Park Avenue Securities LLC PAS.
3040 Post Oak Blvd, Suite 400, Houston, Texas 77056 . 713-622-0192.
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 MarketingLibrary.Net Inc., and does not
necessarily represent the views of the presenting party, nor
their affiliates. Marketing
Library.Net Inc. is not affiliated with any broker or brokerage
firm that may be providing this information to you. This
information should not be construed as investment, tax or legal
advice and may not be relied on for the purpose of avoiding any
Federal tax penalty. This is not a solicitation or recommendation
to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. 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 US Dollar Index measures the performance of the U.S. dollar
against a basket of six currencies. The IBEX
35
is the benchmark stock market index of the Bolsa de Madrid,
Spain's principal stock exchange. The FTSE Italia All-Share Index
is a free float capitalization weighted index that comprises all
of the constituents in the FTSE MIB, FTSE Italia Mid Cap and FTSE
Italia Small Cap indices. 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 Bovespa Index is a gross total return index
weighted by traded volume & is comprised of the most liquid
stocks traded on the Sao Paulo Stock Exchange. The MERVAL
Index (MERcado de VALores, literally Stock Exchange) is the most
important index of the Buenos Aires Stock Exchange. The Hang Seng
Index is a freefloat-adjusted market capitalization-weighted
stock market index that is the main indicator of the overall
market performance in Hong Kong. The SSE Composite Index is an
index of all stocks (A shares and B shares) that are traded at
the Shanghai Stock Exchange.
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. BSE Sensex or Bombay Stock Exchange Sensitivity
Index is a value-weighted index composed of 30 stocks that
started January 1, 1986. 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. 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.
Citations.
1
- www.cnbc.com/id/48858445
[8/31/12]
2
-
money.msn.com/market-news/post.aspx?post=461e046e-bbfc-4426-8cdf-e3ae3e518d70
[8/31/12]
3
-
www.reuters.com/article/2012/08/30/us-economy-idUSBRE87S0ID20120830
[8/30/12]
4
-
articles.marketwatch.com/2012-08-14/economy/33191357_1_sales-at-gasoline-stations-furniture-store-sales-retail-sales
[8/17/12]
5
- www.ism.ws/ISMReport/MfgROB.cfm [9/4/12]
6
- www.ism.ws/ISMReport/NonMfgROB.cfm [8/3/12]
7
-
www.mysanantonio.com/news/article/Drop-in-key-US-durable-goods-orders-shows-weakness-3812413.php
[8/24/12]
8
-
www.reuters.com/article/2012/08/15/usa-economy-idINL2E8JF2C720120815
[8/15/12]
9
-
www.fxstreet.com/news/forex-news/article.aspx?storyid=0f19ea54-c96b-44db-9fa7-eebeb7368190
[8/14/12]
10
-
www.marketwatch.com/story/consumer-sentiment-rises-slightly-in-august-2012-08-31
[8/31/12]
11
-
www.cbsnews.com/8301-505123_162-57504249/bernanke-from-jackson-hole-no-qe3...yet/
[8/31/12]
12
- www.nytimes.com/2012/09/03/business/global/03iht-ecb03.html
[9/3/12]
13
- www.cnbc.com/id/48825430
[8/29/12]
14
- www.cnbc.com/id/48882795
[9/3/12]
15
- www.cnbc.com/id/48844733 [8/31/12]
16
- epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home
[9/4/12]
17
-
topics.nytimes.com/top/reference/timestopics/organizations/e/european_financial_stability_facility/index.html
[7/20/12]
18
-
www.independent.ie/business/european/worldwide-manufacturing-businesses-contract-in-august-3217618.html
[9/3/12]
19
-
markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp
[8/31/12]
20
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[8/31/12]
21
-
www.realtor.org/news-releases/2012/08/existing-home-sales-improve-in-july-prices-continue-to-rise
[8/22/12]
22
- money.cnn.com/2012/08/23/real_estate/new-home-sales/index.html/
[8/23/12]
23
-
blogs.wsj.com/economics/2012/08/29/u-s-pending-home-sales-highest-since-april-2010/
[8/29/12]
24
- www.freddiemac.com/pmms/ [8/31/12]
25
-
montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29
[6/4/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F31%2F11&x=0&y=0
[8/31/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F31%2F11&x=0&y=0
[8/31/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F31%2F11&x=0&y=0
[8/31/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F30%2F02&x=0&y=0
[8/31/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F30%2F02&x=0&y=0
[8/31/12]
26
-
bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F30%2F02&x=0&y=0
[8/31/12]
27
-
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield
[8/31/12]
27
-
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll
[8/31/12]
28
-
treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf
[7/10/02
