Early 2010 Outlook
March 12, 2010
Dear Clients,
RE: Early 2010 Outlook
Recently you received your reviewed 2009 position performance report. For comparison, here is what the major markets have done:
| Index1 | 3rd Quarter 2009 | Year to Date |
| Dow Jones Industrial Total Return | 6.01% | 26.07% |
| Barclays Aggregate Bond2 | .20% | 5.93% |
| NASDAQ Composite | 7.17% | 45.32% |
| S&P 500 Composite Total Return | 6.04% | 26.46% |
| Morgan Stanley EAFE | 1.80% | 27.75% |
For those of you that have attended our client appreciation dinner in December, you’ve heard how we are changing things in the management of our portfolios. We are using two ways to evaluate investments - fundamental analysis (which we have always used) and technical analysis (which we have used sparingly in the past). We’ve had a lot of questions about technical analysis. Here is a brief summary of how we use this tool with an outlook for 2010:
“When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.” ~ John M. Richardson, Jr.
While there is no way to predict what the future holds for our lives, the financial markets, or even the economy, there are actions that can be taken along the way to help achieve the best possible outcome. The past couple of years have been a trying time for many around the world, and while the turning of the calendar to 2010 brings a spark of optimism toward the future, we must always be prepared for whatever the financial markets bring our way. I have learned a lot about the markets in these times, and I too share that same optimism about the future, but perhaps for different reasons than many.
These days many are optimistic simply because of the feeling that things just can’t get any worse, right?!? That type of thinking is relegated to those types of people “who let it happen”, as suggested by the quote from Mr. Richardson, above. I am not optimistic because I think the worst of the storm is over or that better times lie ahead; I am optimistic because I have a game plan for managing risk in the financial markets no matter what the future brings. My game plan does not involve listening to the mass media, which often breeds a following of the herd effect, nor does my game plan involve my own gut feeling on the market. The game plan that I adhere to, and will adhere to going forward, is grounded in the basic economic concept of supply and demand. There are times when that means being extremely defensive on the equities market and parking a large chunk of the portfolio in cash, like the market of 2008.
However, there are other times when the equity market is supporting higher prices, and thus I will have increased, if not overweighted exposure to the equity market like was the case in most of 2009. Who knows how the next 12 months will play our, let alone the next 12 years, and this why it is so important for me not to try and predict what is going to happen; rather, I will simply let the market tell me what is happening and take advantage of those opportunities. With that said, as the New Year is now is full swing, here are the market themes that are in place today.
Market Themes Going into March 2010:
- The domestic stock market is under stress, at least for the time being. 2009 was a positive year for the equities market after a dismal 2008. The long term trend of all of the major indices, like the Dow Jones Industrial Average [DJIA] and the S&P 500 [SPX] are still positive, however. 62% of all stocks on the New York Stock Exchange are in an overall positive trend, but this is down from 76% just a few weeks ago. There is no way to know how long this will last. Trends in the market tend to be longer term in nature, and to give you an idea of how long these trends can last consider this. From 2003 to 2008, the overall trend of the S&P 500 was positive. In other words, the trend of the S&P 500 was positive for about 5 years before turning negative in 2008. We will continue to watch carefully.
- International equities have fallen out of favor. Interestingly enough, when we do a comparison of all investable countries around the world on a fundamental basis, the strongest countries can be found outside of the US, specifically within the emerging countries of the world like India, Indonesia, Brazil, Russia, and Turkey to name a few.
- The bond market seems to be slowly factoring in the reality that rates will have to go up eventually. High-quality commercial bonds are breaking short-term support levels, but could very well hold here. Junk bonds have also sold off to their short-term support levels. Bonds continue to do well. Fundamentally, if the economy continues to recover, I expect long-term bond assets to suffer. Short-term rates still don’t pay much unless you take risk in credit quality.
- The US Dollar continues to rally off its lows. As this materializes, it has put downward pressure on particular assets and sectors, such as Emerging Markets, Commodities, Gold, and Basic Materials. Despite the recent, near-term bounce that has been seen in the dollar over the past two month, the long term trend of the US Dollar still remains negative.
Thank you for your business and support,
C. Cameron Bell, MAS, CFP
Executive Director
[1] Indexes are unmanaged and an investor cannot directly invest into an index. Past performance is no assurance of future results.
Presented in percentage change.*Conclusions expressed in the TA section are personal opinions; and may not be construed as recommendation to buy or sell anything.
This information was obtained in Morningstar Workstation Office Addition, on October 25, 2009.
[2] The Barclays Aggregate Bond Index is comprised of a variety of taxable bonds, and is used as a measure, or benchmark, of the US bond market.
The information contained in this report reflects activity for periods shown and is based on sources believed to be accurate, however it cannot be guaranteed. It is neither an official statement of your account with FSC Securities Corporation, nor has the data been audited or verified by FSC Securities Corporation, correspondent, individual sponsors or money managers as to its accuracy. Please refer to the confirmation notices and client statements that you receive directly from them. The figures may be net of applicable fees, charges, and expenses. They may include dividends, distributions, additional contributions or withdrawals. Prices, yields and total returns will vary. Some securities listed may not be liquid. Prices shown may reflect an approximate or estimated value, and not necessarily reflect actual selling or market price. Tax deferred accounts or/products have various rules and restrictions that apply regarding accessibility of funds, tax consequences and other factors. The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. No strategy can assure a profit nor protect against loss. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses.
Technical Analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the near future. It logically follows that historical precedent does not guarantee future results.
International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
The price of commodities, such as gold and currency, is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities and currency is widely unregulated and concentrated investing may lead to higher price volatility.
In general, bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The investor should note that funds that invest in lower-rated debt securities involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
