Download Weekly Advisor Analysis 08-12-13 CWMG

Weekly Advisor Analysis
August 12, 2013
Fed Tapering Talk Pauses Rally
Subjective arguments were plentiful last week as investors shifted focus from fundamental
corporate and economic data back to attempting to guess the Federal Reserve’s next move.
According to CNBC, Dallas Fed president Richard Fisher made comments alluding to September
being the beginning of a reduction in the U.S. Federal Reserve’s $85 billion per month asset
purchasing program that was enacted with the intent to help boost both employment and inflation.
Many investors feel the massive monetary stimulus has been, at least, partially responsible for the
outstanding rally we’ve witnessed in stocks this year. Therefore, many of those same people
believe a reversal in this seemingly stock friendly policy would have the reverse effects. Given
these concerns, the S&P 500 finished last week 1.07 percent lower, the worst week since June,
again according to CNBC.
Source: Yahoo! Finance
Stock Investors Curb Their Enthusiasm
Last week, as the S&P 500 suffered declines not experienced for several weeks, investors
seemingly stopped to catch their breath and reevaluate where the markets stand. According to
Bloomberg, the S&P 500 currently trades at a price level that is 15.4 times next year’s projected
earnings, which is significantly higher than January’s level of 13.1. Also, this is above the fiveyear average of 13.9 times, meaning stocks are trading at more expensive valuations, on average,
than we’ve seen over the last half decade. Usually, this type of valuation increase, or “multiple
expansion” as some call it, is normal when the future prospects of the economy are improving and
earnings per share, or EPS, estimates of the companies that make up the S&P 500 index are
forecasted to increase significantly in upcoming quarters as depicted below. However, it still has at
least temporarily caused investors to express more caution lately, as evidenced by recent investor
behavior. For instance, only forty stocks in the S&P 500 closed at 52-week highs last Friday
compared to the 193 that accomplished this feat on May 15. Furthermore, less than 79 percent of
S&P 500 companies traded above their 50-day moving averages, down from 93 percent on May
17, again according to Bloomberg.
Source: Yahoo! Finance
Data Points Reach Pre-Recession Lows
Two widely followed statistics released last week indicated certain areas of the U.S. economy may
be back to conditions not seen since the beginning of the last great recession. First of all,
according to the Mortgage Bankers Association, homeowners are falling behind on their mortgage
payments at the slowest rate in over five years. Only 5.9 percent of mortgages were at least 90
days past due or in the process of foreclosure as of the end of June. This is down from its peak of
9.7 percent in late 2009. Furthermore, the Labor Department said last week job openings rose in
June and remain at the highest levels seen in more than five years as depicted below. The job
openings rate is calculated by taking the number of job openings and dividing by total
employment plus job openings. Meanwhile, their data also indicated the number of people fired
from their jobs reached a five-month low in June, indicating companies are increasing overall
employee headcount by both retaining staff and adding new employees.
China Data Improves
Investors have been worried that China, who has the second largest economy in the world, is
slowing at a concerning rate. Those anxieties, however, were put aside this past week for the time
being as China’s General Administration of Customs announced shipments out of the country, or
exports, rose by 5.1 percent last month, far more than the 2 percent increase that was expected.
Furthermore, China imported, which means buying goods and services from other countries, 10.9
percent more last month compared to a year earlier. This resulted in a trade surplus of $17.8
billion in the month of July as depicted below. Exports specifically headed to the U.S. and Europe
increased for the first time in five months signaling hope that those countries’ economies are also
experiencing relatively more economic strength. Again, although it’s somewhat counterintuitive to
believe, it appears all of this “good news” on the economy is actually resulting in selling pressure
on stocks because investors are under the general assumption it will result in a reduction of
Federal Reserve bond buying activity. While this is most likely true (the Federal Reserve has
repeatedly stated they will begin slowing their purchase activity as the economy strengthens), one
must stop and ask themselves what will drive investments higher in the future. Will it be a strong
economy? Or, will it be a government body buying trillions of dollars in fixed income products?
Only time will tell, but last week’s performance would indicate the investors participating in the
stock market lately seemingly prefer more Fed stimulus over increasingly positive economic data.
Best regards,
UDB Financial
Securities offered through LPL Financial, Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to
predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
Sources:
http://www.cnbc.com/id/100952134
http://www.bloomberg.com/news/2013-08-07/u-s-stock-futures-fall-as-investors-weigh-fed-tapering.html
http://chart.finance.yahoo.com/z?s=%5eGSPC&t=5d&q=&l=&z=l&a=v&p=s&lang=en-US&region=US
(Chart)
http://finance.yahoo.com/news/market-outlook-p-500-2-181500881.html
http://l.yimg.com/bt/api/res/1.2/beCiu0nBrnQCY8l7GXJAuA-/YXBwaWQ9eW5ld3M7cT04NTt3PTQ3Ng-/http://globalfinance.zenfs.com/en_us/Finance/US_AHTTP_STREET_AUTHORITY_HOS_LIVE/07-2913-spx-eps.png (Chart)
http://www.bloomberg.com/news/2013-08-08/jobless-claims-in-u-s-over-past-month-drop-to-lowest-since2007.html
http://www.bloomberg.com/news/2013-08-08/consumer-comfort-in-u-s-climbs-to-more-than-five-yearhigh.html
http://www.bls.gov/opub/ted/2013/ted_20130807.htm
http://www.bls.gov/opub/ted/2013/images/ted_20130807a.png (Chart)
http://www.bloomberg.com/news/2013-08-08/china-july-exports-and-imports-exceed-estimates-surplustrails.html
http://www.chinadaily.com.cn/business/chinadata/2013-08/08/content_16880646.htm
http://www.chinadaily.com.cn/business/chinadata/img/attachement/jpg/site1/20130808/0023ae82ca0f136da
b9e50.jpg (Chart)