The Market Today
Quarterly Market Commentary – Q109 Rally lifts spirits Dramatic late-quarter rebound Most European economies, which have also been hard hit by the global recession, have experienced market declines of a similar magnitude this year, while some countries—such as Italy, Germany, Finland, and Japan—have suffered market losses even greater than those here at home. The bright spots for equity investors have been in typically volatile emerging markets, such as China, Russia, and Brazil. These markets are each in positive territory for the year-to-date 2009, but, in most cases, they have still fallen further than developed economies over the past 12 months. Optimistic signs? One such sign was a 0.3-percent rise in consumer prices in January, according to Labor Department statistics, the first monthly increase in six months. And while inflation is typically not welcomed by consumers, in this case some have construed it as a signal that the likelihood of a worst-case, deflationary spiral has at least been lessened.
Coinciding with the February data release, retail sales for January were also revised higher—from up 1 percent in the initial estimate to up 1.8 percent—ending a string of six consecutive months of declining consumer activity. Many analysts, however, consider the January sales rebound to be a one-time anomaly in the aftermath of a severe slowdown in the last several months of 2008. Even the beaten-up housing market revealed glimmers of hope, as historically low mortgage rates and distressed prices in many areas fueled an increase in sales of both new and existing homes. Existing home sales rose 5.1 percent in February, as compared with the prior month, but prices were also 15.5-percent lower than they were in the same period one year ago. Distressed sales, including short sales and foreclosures, continue to play an important role in setting the market, as roughly 45 percent of recent sales nationwide fell into that category. More robust sales activity, however, will be a key ingredient in clearing the excess inventory of unsold homes—not to mention in giving consumers the confidence that the slide in prices may finally be stabilizing. On a national basis, single-family prices have now declined by nearly 30 percent from the July 2006 peak, according to the Case-Schiller Composite 20 Index, though regional variations in price declines are predictably wide. On March 24, the Treasury released details of its Public-Private Investment Program (PPIP) to use up to $100 billion in Troubled Asset Relief Program (TARP) funds to purchase illiquid mortgage pools and mortgage-backed securities. Under the plan, the Treasury will select four to five private investment managers to participate in an auction to purchase assets that banks have elected to sell. The Treasury will match whatever capital is invested by the private firms with the remaining leveraged capital in the form of FDIC- or Treasury-backed financing (depending on the specific assets being purchased). On the surface, the plan appears to be a reasonable compromise between enticing private capital to the market for mortgage-related assets and exhibiting care in the use of public funds. Finally, the Federal Reserve announced plans to purchase up to $1 trillion combined of Treasury bonds and Fannie Mae and Freddie Mac mortgage-backed bonds as a means to inject more money into the system and to keep a lid on interest rates. The move should help to keep interest rates, particularly mortgage rates, in a range that encourages home purchasing and refinancing activity. Given sufficient time, the move should also help to restore equilibrium to the housing market. Looking ahead Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. ### Adam Brooks, Daniel Evans, & Jared Pearson are financial advisers practicing at Brooks Financial Advisors, LLC, 1567 SW Chandler Ave, Suite 102, Bend, OR 97702. They offer securities and advisory services as registered representatives of Commonwealth Financial Network®, a member firm of FINRA/SIPC. Brooks Financial Advisors is a Registered Investment Adviser. They can be reached at 541-330-6411 or at brooksfinancial@bendcable.com. Authored by John Blood, CFA, chief market strategist, at Commonwealth Financial Network. © 2009 Commonwealth Financial Network® |
|
Retail sales data has also showed positive signs, a hopeful indicator that perhaps the U.S. consumer will prove more resilient than expected. In February, retail sales fell by 0.1 percent, as compared with the prior month, but that slight decline was better than many forecasts. Even more promising, after excluding automotive industry sales (which remain under considerable stress), the retail sales number actually grew by 0.7 percent for the month—as sales of furniture, clothing, and electronics were all stronger than expected.