Why might your investments still be going up? Your Weekly Update

In theory, there is a reason for everything. In reality, we’re not so sure!

However, this week we explore the reason that stock prices, and by extension, client’s investment portfolios seem to keep appreciating in spite of world events.

We think you’ll enjoy this interesting and optimistic point of view. Please feel free to pass along as always.

Best regards,
Lee and Jeremy


This Week’s Quote:

“Don't worry about the world coming to an end today. It's already tomorrow in Australia.”
― Charles Schultz, artist, creator of “Peanuts”


JL Davis Thoughts This Week:

Lately our friends in media have been covering any number of international and domestic disasters. Sadly, they’ve had a lot to do and their reports continually generate worry.

Yet, so far this year, the S&P 500, including dividends, has returned 10.1% to investors. The NASDAQ, including dividends, is up 10.7%. Virtually every day, we’re asked a very simple question: Why?

Why is the market up when the Federal Reserve has tapered bond purchases from $85 billion per month, to the current $25 billion? How can markets be rising when we all know the Fed is likely to end all buying after their late October meeting? Why are markets moving up when some Fed members forecast higher U.S. interest rates in 2015?

Why the market is up as Vladimir Putin invades Ukraine, and ISIS does their evil in Iraq and Syria? What about the volcanoes in Iceland and disrupted air traffic? Why, when Ebola is spreading across the seas in Africa and we face uncertain Congressional elections in the US can the U.S. stock market move ever higher?

The upward trend started some sixty-six months ago on March 9, 2009 and since then, the S&P 500 is up at annualized average of 24%, including dividends. That’s one of the sharpest rises we’ve ever seen. Yet those last five years have also witnessed enormous “worries”, including the Sequester, Greece, Dubai, Cypress, the Fiscal Cliff (twice), too many part-time jobs, swine flu, global warming, and on and on.

We are reminded that in the long run, the pessimists have never been right about the market. Not once. Perhaps this negativity is one reason CNBC viewership is falling, having dropped to a 2 year low according to Zap2it.com. Network news shows seem to be suffering the same fate at present.

Here’s our take on the “Why’s” of the stock market run:

Because. Because the 21st century is an amazing period of entrepreneurial activity. Because consumers and confident and buying. Because fracking, 3-D printing, robotics, biotech advances, the Cloud, wireless communication technologies, smartphones, tablets, electric and hybrid cars are all moving along at lightning speed. Many, many areas are seeing massive advancement and the business world is a vibrant, productive and highly efficient juggernaut. One broad measure of profits has grown 20% at an annual average rate between the 4th quarter of 2008 and the second quarter of 2014. Perhaps a better “Why Question” is why can’t TV capture that vibrancy in a way that attracts more viewers? Thankfully, media in the main doesn’t drive stock prices. Corporate profits do. That’s why stocks keep rising in spite of all the negative news that circulates.

The wise are vigilant. They already have a plan in place for any downside that might occur. And they ignore the persistent pessimists!**

Lee and Jeremy


http://www.federalreserve.gov/monetarypolicy/fomcminutes20140730.htm
http://www.ssa.gov/OACT/TRSUM/index.htm


Market Week: September 8, 2014

The Markets

Amid a flood of mostly positive economic data and what at first blush appears to be good news from Ukraine, nearly all market sectors finished the short week in positive territory. Even surprises from the European Central Bank and Friday's jobs numbers seemed to have minimal impact on investors, as the S&P 500 continued its record-breaking run.


Last Week's Headlines
• The manufacturing sector reported its strongest economic reading since March 2011. The Institute for Supply Management's Purchasing Managers Index (PMI) came in at 59% for August, up 1.9 points from July's reading of 57.1%. Part of the increase was due to record levels in the New Orders Index, which registered its highest reading in more than a decade.
• The positive results in new orders was echoed by the U.S. Census Bureau, which reported that new orders for manufactured goods rose by a record-setting 10.5% in July, the highest reported increase in 22 years. Manufactured goods orders have risen in five of the last six months. Shipments, unfulfilled orders, and inventories also hit record levels. Transportation equipment saw a 74.1% increase, and was the reason for the unprecedented rise. Excluding transportation, new orders actually fell by 0.8%.
• New records were also reported in auto sales, as manufacturers noted sales of nearly 1.6 million cars and trucks in August. Sales are on pace to reach 17.5 million this year, a level not seen since July 2006. Industry observers said that much of the increase was due to low interest rates and other incentives.
• Construction rose by 1.8% in July to a seasonally adjusted annual rate of $981.3 billion, according to the U.S. Census Bureau. The figure is 8.2% higher than a year earlier. Through July, construction spending totaled $535.4 billion, nearly 8% higher than the $496.3 billion spent during the same time frame in 2013. Growth was led by nonresidential private construction and public construction, particularly highways.
• The Federal Reserve's beige book report was generally favorable, stating that economic activity had expanded since the previous report and noting that "none of the Districts pointed to a distinct shift in the overall pace of growth." Notable areas of growth included consumer spending, auto sales, and tourism.
• The Commerce Department announced that the trade deficit shrank to $40.5 billion in July, down from $40.8 billion in June. Exports rose by $1.8 billion, while imports rose by $1.5 billion.
• The European Central Bank (ECB) surprised observers Thursday with the announcement that it would cut all interest rates, and launch programs to buy asset-backed securities and euro-denominated covered bonds. Details surrounding the new programs will be provided at the ECB's October meeting. In announcing the moves, ECB President Mario Draghi said, "These decisions will add to the range of monetary policy measures taken over recent months," adding that they reflect significant differences in monetary policy cycle among the eurozone's major advanced economies. He also noted that the moves will "support the provision of credit to the broader economy."
• Labor productivity (output per hour) rose 2.3% during the second quarter of 2014, while the costs of labor edged down 0.1%. During the quarter, hours worked rose 2.6% and output increased 5%. Productivity increased 1.1% from second quarter 2013 to second quarter 2014. Unit labor costs increased 1.7% over the previous four quarters.
• After months of positive news, the Labor Department reported disappointing job growth for August, and revised figures downward for earlier this summer. Despite an unemployment rate that continued to decline--down to 6.1% in August from July's 6.2%--nonfarm jobs rose by just 142,000 in August. For the previous 12 months, nonfarm payrolls increased by 212,000, on average. After accounting for revisions in both June and July, the total number of added jobs in those months was 28,000 less than previously reported.
• Ukraine and pro-Russian rebels signed a truce that took effect Friday evening, local time, in what observers hope will be the beginning of the end of the five-month conflict. Friday also brought news of a new "spearhead" force of several thousand land troops agreed to by NATO allies to address growing threats in the Middle East and other areas, if needed.

Eye on the Week Ahead
In a week that promises minimal influence in the way of economic data, investors may be watching events abroad, particularly to see whether the Ukrainian cease-fire agreement holds.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2014