The Market Today
May 2009 Market Recap Presented by Adam Brooks, Daniel Evans, & Jared Pearson Seeds of stabilization May 2009 provided more encouraging data for those who believe that the economy is turning the corner from recession to recovery. A number of key economic indicators have either stabilized or improved—at least in the short term—after having experienced a precipitous decline over the previous several quarters. For example, the federal government’s efforts to support the housing market by keeping mortgage financing affordable have reaped rewards. One metric unquestionably on the upswing is the Conference Board’s Consumer Confidence Survey, which has rebounded sharply after plunging to never-before-seen depths in February and March. For certain, investors looking for positive signs can find them. Market rebound continued Those reinvigorated investors have helped fuel a remarkable resurgence in stocks and other assets that they had spurned only weeks ago. Extending double-digit returns in April, the major domestic stock indices continued their advance in May—the Dow Jones Industrial Average gained 4.52 percent, while the S&P 500 Index rose 5.31 percent for the month. Returns outside the U.S. were even more attention-grabbing, with the MSCI EAFE Index jumping 12.04 percent in May and the MSCI Emerging Markets Index posting a 17.14-percent gain. To put the sharp rebound into perspective, since the lows reached on March 9, domestic stocks have returned on the order of 35 percent, while developed and emerging market stocks have rocketed up nearly 45 percent and 60 percent, respectively. Baking the cake Some pundits are casting a wary eye toward the recent stock market rally, their wariness stemming from the fact that stock prices are inherently forward-looking and already reflect the market’s collective expectations for the future. The common expression is that future expectations are already “baked into the cake,” as reflected by current prices.
For now, markets perceive positives outweigh negatives Longer-term concerns aside, however, the markets perceive enough positives to outweigh the negatives at present, and they have moved sharply higher as a result, allowing investors to recoup a portion of their prior losses. Compared with the experiences of the year’s first quarter, recent outcomes have no doubt been a very welcome change. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. 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 MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. ### 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® |
|
The average rate for a 30-year fixed-rate mortgage reached an all-time low of 4.81 percent in April, spurring an uptick in new mortgage applications and a flood of refinancing activity. Price data is more muddled, however, as some indicators show signs of bottoming, while others point to continued erosion.
The primary concern at present is that markets have priced in not merely a stabilization of the economy, but also a rapid resurgence that may prove difficult to live up to, leaving the potential for future disappointment. For instance, despite the improvements we have experienced, the employment picture is still a potential trouble spot for the economy. The contraction in payrolls has ebbed from the drastic declines of the winter months, but job losses still numbered 539,000 for the month of April—a number far from indicative of an economy on the mend.