Currently, a slowing economy, high unemployment and a terrible housing market are all factors playing a part in the current stock market correction. The recent economic news has not been good, and many investors, individuals as well as institutions, are nervous. As such, it is during these times that some individuals look especially hard for guidance from very obscure sources. Unfortunately, some of these sources are unproven, extreme and often increase investors’ emotions which can lead to more stock market volatility and declines.
The “Hindenburg Omen” is the hot indicator of the week, and is flashing that the stock market could significantly correct / decline in the upcoming weeks / months. On the surface, some of these types of indicators are not only foreboding, but appear to make compelling arguments. Read more
Toward the end of this commentary, I am including terms and their applicable definitions that I have used and / or may give you a better understanding of bonds, the risks involved, and the strategies employed by different bond-fund managers. The list of terms and their applicable definitions is by no means complete, but I hope it helps give you information and insight on bonds.
The need for income, economic uncertainty and stock market volatility are various factors of why investors have flocked to bonds. Bonds can have a place in many investors’ portfolios; however, there is an old saying that too much of anything isn’t good for you. This is also true as it relates to bonds.
At the beginning of 2000, stocks were the investment du jour and now 10 years later bonds are. Oftentimes, greed and fear are the primary driving forces and all other fundamental analysis of various investment sectors is ignored. Along these lines, bonds can provide income, but obtaining the highest income possible should not be the overriding factor. We need to consider the quality / rating of the bond (i.e., what is its perceived risk of default – see Credit Risk definition below) and the length of time (e.g., how many years) until it matures. Read more
Before I go into my weekly diatribe, I made a concerted effort to send the commentary out today so as to avoid sending it on Friday the 13th.
The economic news over the last few days has been a downer. Cisco, the maker of equipment that is the backbone for the internet reported earnings below analysts’ expectations. John Chambers, Cisco’s CEO, noted that “there are some challenges that are contributing to an unusual amount of conservatism and even caution.” Separately, the U.S. Labor Department reporting that the number of people filing for unemployment benefits for the first time rose last week to 484,000. Economists expected the number to drop.
The overriding opinion is that we have a slowing economy here in the U.S., and there are signs that this could be case the in China and other countries. Unfortunately, this is only one piece of the puzzle. Read more
The following are just a few items to consider as we look at the potential for investors (via their investment holdings) and the economy.
- The Labor Department released employment numbers that were less than enthusiastic.
- As of this Wednesday, over 80% of the S&P 500 stock index companies have reported that earnings were up 46% compared to the prior year. However, much of these gains were from cost cutting and increased efficiency. Along this line, it has been mentioned that many of these companies may continue to prioritize cost cutting and efficiency improvements versus hiring additional workers. Read more
