top of page

Market Perspective for 11/26/12

Stock Market Perspective Domestic Stock Market The proximate cause of the recent market declines seems to be the “fiscal cliff” or the combination of tax increases and government spending cuts set to take place at the beginning of 2013.   In addition, we are seeing both the normal tax loss selling and also tax gain selling (taking profits in order to realize a 15% capital gains rate rather than a potentially higher rate in 2013).  Stocks have broken below both their 50 day and their 200 day moving averages, which is a bearish technical signal.  Investors are beginning to fear that we at the threshold of another major collapse in stock prices.  I don’t believe we are.  Here is what I believe we should keep in mind:

  1. Markets sell off from time to time.  The magnitude of the recent decline was -7.6% (9/14 – 11/15).<1> This is still less than the -9.7% decline from early April to early June.<2> It is an unusual year that we don’t see at least two -7% declines.  Statistically, single-digit declines usually don’t become mid-teen declines (and for that matter, mid-teen declines seldom become -40%+ crashes).<3>

  2. We may be seeing the emergence of a “stock vigilante” movement.  In the early-mid 1990s the bond market forced politicians to pursue bond-friendly policies by selling off (pushing interest rates up) anytime they acted in a fiscally irresponsible manner.  Pres. Clinton famously complained about the bond market, but the bottom line was that during his administration the bond market got what they wanted and the country prospered.  Stocks sold off in the summer of 2011 as the two political sides bickered, then rewarded us with strong gains once a (fairly) credible agreement was reached.  It appears that stock investors are again putting the pressure on.  If the fiscal cliff is resolved favorably, this could be a positive catalyst.

  3. The period from November 17th through the end of January is historically the most favorable time of the year for stock investors.  No guarantees of course, but I always prefer the wind at my back as opposed to in my face.

  4. Mathematically, a significant part of the overall market decline has been the -25% plunge in Apple Inc. from its September 20th peak of over $702 to its Friday 11/16 close of $527.  (As of 11/26 Apple trades at $577 or -21.6% off its high) Even at its 11/16 low, Apple was worth $100 billion more than ExxonMobil, the second largest U.S. company.  Its decline alone cost the stock market $164 billion in market cap.  With Apple appearing to have found support, a major downward force in recent weeks may be ready to resume pulling the market upward again.<4> I don’t want to minimize the risks that investors face, both short and long term.  I just don’t think we are on the edge of a significant down move. International Stock Market International stocks have outperformed U.S. stocks so far this quarter by about 4% (+4.46% vs. -0.23%)<5>.  Much of this is tied to the special factors described above (the U.S. fiscal cliff, the plunge in AAPL).  Some is because of the misguided belief that things are getting better in Europe.  They aren’t.  There is an investment case that can be made for Latin America, for Africa, and even for much of Southeast Asia but not for Europe.  Last Spring, when Bill Gross made his “cleanest dirty shirt” remark with regard to preferring the U.S. to pretty much any place else in the world to invest, he was pretty close to calling the top in the market.  The U.S. got overbought in a relative sense, and foreign markets began performing better (as any contrarian would expect).  Going forward however, Bill may finally be right. Bond Market Perspective One concern I do have is with regard to high yield bonds. According to Moody’s, covenant quality is near record lows. In other words, the protections granted to the investor by the issuer are at the lowest level since 2007 because investors are so hungry for yield they are willing to accept unfavorable terms.  This is a cyclical phenomenon that we have seen since high yield bonds were first invented in the 1980s and it NEVER ENDS WELL.  Whether the peak is two months or twenty months from now is unknown, but the last few crumbs of profit are best left to others.

Past performance is no assurance of future results.  Trademark Financial Management, LLC (“Trademark”) is a registered investment adviser with its principal place of business in the State of Minnesota.  Trademark and its representatives are in compliance with registration requirements imposed upon investment advisers by those states in which Trademark operates. Trademark may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration.  This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by Trademark with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Trademark please contact Trademark at (952) 358-3395 or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about Trademark, including fees and services, send for our disclosure statement as set forth on Form ADV from us using the contact information herein or by calling 952-358-3395.  Please read the disclosure statement carefully before you invest or send money.

<1> As measured by the S&P 500  Source:Telemet Orion

<2> As measured by the S&P 500  Soucre: Telemet Orion

<3> Source: Telemet Orion

<4> Source: Telemet Orion

<5> As measured by the MSCI and S&P 500

0 views0 comments

Recent Posts

See All

Trademark Market Perspective for 2/24/2022

Follow-ups and New Thoughts: My first investment thought today is that TIPs just became more interesting. TIPs started to fade as investors contemplated 5-7 rate hikes, because coupon bonds would then

Trademark Market Perspective for 2/1/2022

Follow-ups and New Thoughts: Bill Hinch is a 35-year investment veteran who now runs the First Eagle Small Cap Opportunity Fund after a long, successful stint at Royce Funds.  I took the following no

Trademark Market Perspective for 12/13/2021

Follow-ups and New Thoughts: 1) November Employment Report The number of jobs created in November (210,000) may have been a disappointment but I believe there are big questions about how that measure

Comentários


bottom of page