Where do you think we are? The Cycle of Investing and Your Weekly Update

Those who know us at JL Davis as fervent optimists may be confused at the subject line for this week’s Update, especially since it’s not April Fools!

So for clarification, put your feet up a moment and read the attached. We think you’ll find it very enlightening.

Then, please take a moment to let us know where you think we are... hit the “reply” button and let us know your thoughts.

Best always,
Lee and Jeremy


This Week’s Quote:
“There are two things in New York: euphoria and disaster.” ~ Bill Parcels

JL Davis Thoughts This Week:

NFL Hall of Famer Bill Parcels had it right when he spoke about coaching football in New York, but might he just as well have been speaking about the U.S. Stock Market? Consider these facts:

• The S&P 500 finished higher for the 8th straight week, a streak not seen since 2004.
• As of last Friday, it’s up 26.6% this year.
• The NASDAQ index, primarily technology companies, closed last week above 4000 for the first time in 6 years.
• Monthly job growth during 2013 has averaged 186,000. That’s the most since 2005 (source: Bloomberg)

A more complete list of economic data is available from our friends as First Trust*. But make no mistake; a great deal of the data we are seeing week after week is quite positive. And the surge in the equity markets in the U.S. and around the world (i.e. Japan’s Nikkei index is up over 50% year to date) signals that investors must be feeling positive, too.

So let’s take a look at the “stages of investor behavior” below. Where in the cycle do you believe we find ourselves presently?

• Contempt: Many believe a bull market begins when investors scorn stocks after a big decline.
• Doubt and suspicion: Having taken losses, investors flock to safety and refuse to invest…ever!
• Caution: As markets gradually show signs of recovery, most investors stay cautious. Prudent investors may already be positioning for future gains.
• Confidence: Stock prices rise, confidence returns and most investors start buying stocks.
• Enthusiasm: Prudent investors start taking profits often reducing stock holdings, most investors add to positions.
• Greed and conviction: Most agree the market will continue its upward path, greed begins to prevail, numerous IPO (initial public offerings) are seen.
• Indifference: Very high price-earnings ratios prevail; talk of a “new normal” is news.
• Dismissal: The market declines, but investors are unconcerned.
• Denial: Markets continue to decline, many investors feel they cannot afford to lose any more.
• Fear, panic and contempt: Concern starts to take hold and fear, panic and despair soon follow. Investors once again start scorning the market and vow never to invest in stocks. Cycle repeats.

Regular readers of this missive know that we believe strongly in diversification, rebalancing, and tactical discipline as ways to increase the opportunity for investment gains over time. While we remain positive in our viewpoint for now, we are always aware of the cycle.

And your thoughts?**

* http://www.ftportfolios.com/commentary/economicresearch/MMO
http://www.investmentpostcards.com/2008/08/29/investor-psychology-cycle-%e2%80%93-are-we-there-yet/#ixzz2mNuRRzVD
http://www.nytimes.com/2013/12/03/business/economy/factories-worldwide-are-showing-momentum.html?_r=0
http://finance.yahoo.com/blogs/daily-ticker/nasdaq-4000-why-time-different-150147728.html


Market Week: December 2, 2013

The Markets

The Dow industrials and the S&P 500 continued to set all-time records with an eighth consecutive week of gains for both. And though the Nasdaq remained far from its all-time high, it finally managed to surpass the 4,000 threshold last seen more than 13 years ago. Meanwhile, the benchmark 10-year Treasury yield remained stable

Last Week's Headlines

• Building permits rose 6.2% in October, according to the Commerce Department, and were almost 14% higher than in October 2012. Data on September and October housing starts, which was delayed by the federal government shutdown, will be available along with November figures on December 18.
• Home prices were up 3.2% in Q3 in the 20 cities measured by the S&P/Case-Shiller 20-City Composite Index. September's 0.7% gain represented a 13.3% increase from a year earlier, the highest annual growth since February 2006.
• Durable goods orders fell 2% in October. The decline was fueled in part by a nearly 16% drop in new orders for aircraft and parts, the same factor responsible for the previous two months' worth of increases. However, orders for computers and capital goods also fell, leaving nontransportation orders down 0.1% for the month.

Eye on the Week Ahead

Friday's unemployment rate--the last before the Fed's monetary policy committee's last meeting of the year--and preliminary sales results from the expanded Black Friday retail holiday weekend will likely dominate the week. However, reports from a range of economic sectors, including housing, manufacturing, services, and consumer spending, also will suggest the state of the economy.

Key dates and data releases: U.S. manufacturing, construction spending (12/2); auto sales (12/3); new home sales, balance of trade, Fed "beige book" report, U.S. services sector (12/4); revised Q3 GDP estimate, factory orders (12/5); unemployment/payrolls, personal income/outlays (12/6).

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2013