It is spring, and it has been a very wet one in Overland Park. However, the nice weather has put most everyone I know in a much better mood. The same can be said for investors and consumers, both seem to be much more optimistic about the stock market and economy. Especially when the Conference Board (i.e., a not-for-profit, nonpartisan organization of business leaders representing a variety of major industries) noted this week that signs of an economic recovery may be near. This is based upon its index of leading economic indicators rising 1% in April after seven straight monthly declines. Also, it was the largest gain in nearly four years.
However, there are still some underlying issues at play that temper my enthusiasm for the coming months. The following are just a few examples:
•· Three of the United State’s biggest trading partners – Mexico, Japan and Germany each saw their economies contract substantially in the first quarter of this year.
•· Britain’s government debt outlook was lowered from stable to negative by Standard & Poor’s. Britain currently enjoys an AAA credit rating, same as the U.S. government, which is reserved for the least risky bond issuers. However, S&P is concerned that Britain will not be able to maintain its AAA credit rating in the years ahead.
•· China’s exports are dropping as the rest of the world struggles through recession. Also, credit-ratings firm Fitch Ratings stated that it believes China’s banks are just beginning to show signs of loans deteriorating.
•· Here in the U.S., the Federal Reserve announced this week that is expects the U.S. economy to improve in the coming months; however, policymakers reduced their outlook for all of 2009.
•· California is dealing with its worst budget crunch ever and has been looking to Uncle Sam for help. However, U.S. Treasury Secretary Timothy Geithner noted yesterday the U.S. Treasury Department was not able to access a $700 billion bailout fund approved by Congress last year to help.
Don’t panic! It is not the end of the world as we know it. However, it is my belief that the U.S. and many overseas stock markets have gotten ahead of themselves (i.e., they’ve gone up too much and too quickly). Several investment experts and portfolio managers noted similar comments in various periodicals that I read. Their opinion is that the recent rally has been led by what they consider lower-quality stocks and riskier asset classes, such as financial stocks and emerging market stocks. As such, they don’t believe we will see a sustained rally until more quality companies, those with real earnings and don’t need a bailout or raise capital, start leading the way.
I am not a pessimist; however, I want to drive home the point that we could very well see the stock market decline in the upcoming months. Basically, the stock markets globally may pause and retrace short-term, before resuming a more stable and long-term recovery. This would be what is called a W recovery pattern for the stock market:
As such, for money currently in cash / money market that I plan to allocate to stocks (i.e., stock mutual funds), these purchases will be made over the next several months. This dollar-cost average approach will allow us to take advantage of anticipated dips. As I’ve noted in past commentaries and in conversations with many of you, I believe we will see a sustainable rebound in world economies and stock markets later this year or into early next. Until then, let’s don’t start popping the champagne.
Events
Debra Kunz will have Strategic Planning workshop on June 17th. For more details on these or other upcoming events, please visit our web site at http://iia-kc.com/events/
Quotes
”You can pay too high for a bit of soft living”.
Mary Norton The Borrowers Aloft
“As small as it may seem, a good deed is always worth doing”.
Spark Matsunaga, politician
“If all the gold in the world were melted down into a solid cube it would be about the size of an eight-room house. But all the gold- billions of dollar’s worth- could not buy a friend, character, peace of mind, a clear conscience, or a sense of eternity.” unknown
“Live each day as if your actions would be the headlines the next day in the local newspaper.”
Jon A. Boscia, business executive
Have a great Memorial Weekend!
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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