Thursday, August 30, 2012

Not Your Fathers Market

The S&P 500 has been in a hold to slightly negative pattern the last couple of weeks.  I am shocked at the markets desire for more stimulus from Fed Chief Bernanke this week at the Jackson Hole symposium.  Investors seem to be cheering negative economic news and selling the market on positive news for the economy.  What more do investors want the Fed to do?  QE1, QE2 and Operation Twist were not enough?  It is time for the Fed to step aside and let our economy grow on its own.  Investors need to step back and look how far the markets have come.  The S&P 500 is up 13.81% year-to-date, up 18.91% over the last year and up 45.90% over the last three years. 

Yes corporate America wants a clearer understanding about what is coming out of the White House.  That is why they are sitting on so much cash.  However, corporate America is strong and this shows in the markets returns.  This will eventually lead to more jobs (providing Obamacare is not being shoved down CEO throats) and an increase in consumer confidence.  After all hasn’t the recent data showed this may be already taking shape?  Consider recent economic date:

-        Consumer prices have held steady since March

-        Even with a severe drought the cost of food of only increased by .1% in the month of July

-        Personal income has surged to the highest pace this year

-        U.S. retail sales rose .80% in July, which was much higher than the .30% expected

-        Consumer confidence rose in July to 65.9

-        The Labor Department announced that 163,000 new jobs were created in July.  Much greater than the 100,000 expected by economists

Is it really shocking that our markets are strong?  They have been clipping along at a nice pace ever since June.  Why not?  Based on the recently good data, it would suggest that economists will need to raise their GDP estimates.  Many of the “nightly news” numbers look awful, but you should not confuse an inefficient government with the free market and the brain power in corporate America.  Heck if you invested based upon what you hear in the nightly news you would still think real estate is an awful investment.  Meanwhile the average real estate securities fund has posted a positive gain of 81.66% over the last three years.

Stop waiting for a quick fix and get in the game.  Get your hands dirty and do some good old-fashioned research.

Thank you and good luck everyone.
Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”; Manager/Creator of the AFL Model Portfolios available for members of Allocation For Life in self-directed accounts at Folio Investing