Where are we in the market cycle? January 20, 2011
Posted by royceruckman in Investments.add a comment
As any student of investments knows, markets move in cycles. The problem is it is very difficult to know how long, or how far, a particular market cycle will run. From the fall of 2007 through early spring of 2009 we experienced a devastating bear market causing many investors to lose nearly half their invested net worth. Since early March 2009 we have experienced excellent returns. Unfortunately, the 2007-2009 bear market resulted in a psychological block for many investors preventing them from enjoying the recent bull market. A broad segment of the public have such a vivid memory of the pain from those losses that they are still reluctant to get back into the market. This is similar to what happened in the 1930′s following the Great Depression. Many were so fearful of stock investments that they completely avoided stocks and missed out on some great returns.
Some are now questioning how long the current bull market will run or how high the market may go before shifting to the next bear market. If only there were some way to predict this with some accuracy. That is not possible because there are so many factors at work which impact the markets.
The year 2010 produced very nice returns. However, it was a rollercoaster year with some very good months and very bad months. About half the 2010 returns occurred in the month of December. Like it or not, market volatility seems to be here to stay. The days of a long steady upward market seems to be the thing of dreams or long ago memories.
It is important for most investors to stay focused on the long term and ignore the short term volatility. Yes that is very hard! It is easy to look at each dip in the market and wonder if that is the start of the next bear market. The big question today is, where are we in the current bull market cycle?
From my reading, there seems to be less diversity of opinion as to where the markets may go in 2011. The industrial economy has gathered some momentum, the emerging markets are surging, companies are flush with cash, and profits look set to rise decently again. Oh yes, you can always read an article predicting run-away inflation, or some other issue that could bring about the next bear market very soon. I suggest you ignore the authors that seem to predict the extremes and follow the thinking of the majority of economists and prognosticators. I sense more consensus that the markets will behave in 2011 similar to the way they did in 2010. That is, we are likely to end the year with the DOW producing 10% or better performance. I think most would agree there will be bumps in the road getting there. A long slow recovery is much better than a quick recovery that may not last. We clearly seem to be in the midst of a very slow, and probably long, economic and market recovery. This slow recovery should be good for investors even though it is not good for those who are unemployed or underemployed.
So, having said all that, where are we in the market. It appears to me we are in the midst of a bull market that will likely continue an upward momentum for the near future, at least through 2011, and probably beyond. If you are sitting on the sidelines in cash waiting for market stability before investing, you may miss out on significant returns. By the time the market looks stable, it will likely be near its peak. Those on the sidelines have already missed a major recovery.
Need Help?
If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.
Happy Investing!
Royce
Royce L. Ruckman, CPA, AEP
Director of Investment Services
United Methodist Foundation of Indiana, Inc.
1001 N. Western Ave., Suite D, Marion, IN 46952
toll free 866-669-2327, local 765-664-2327,
cell 765-661-6804
e mail rruckman@niumf.org
Visit our web site at http://www.niumf.org
2011 Investment Outlook January 13, 2011
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As investors look back over the last decade, the first decade of the 21st century, there is not much to feel good about. The Standard & Poor’s 500 stock index (excluding dividends) ended 2010 about 5% below its level 10 years earlier. This is only slightly better than the returns from 1930 through 1939 when the Great Depression devastated the economy. The Dow Jones industrial average was up about 7% for the decade. Hopefully, all that pain is behind us and we can
As we start a new year, many economists, consultants and financial advisors are offering their thoughts on what the new year may bring. As I have been reading many of those articles I see a common thread and decided to share it with our readers.
From my reading, it appears consensus that the worst of the recession is behind us. However, most are expecting a long and slow recovery for the U. S. economy. Talk of a double dip recession has all but disappeared from the discussion and now appears extremely unlikely. Unemployment appears likely to remain near the current 10% level for the near term. In spite of high unemployment, most commentators are generally upbeat about prospects for the economy. Modest growth of corporate sales is anticipated for 2011. Since corporations have become much more lean in order to survive the recent recession, those who survive will do all they can to remain lean, being reluctant to add employees or additional overhead. Thus, as sales increase, profitability will be high because of their low overhead.
As long as the U. S. and global economies continue to grow, corporate profits will likely follow. The Federal Reserve forecasts U. S. growth to be in the 3% to 3.6% range in 2011. Some observers are more cautious, some predicting only 1.5% to 2.5% growth. Regardless, if corporate sales increase, profits will increase and drive the stock market higher. The real question is how fast or high will the market rise.
The Fed’s investing billions in mortgage backed securities and treasury securities will create an “easy money” situation. This could easily help fuel corporate growth and profitability. On the other hand, it could result in increased inflation. Most commentators seem to think inflation is still a minor threat for the time being.
Many advisors are bullish about stocks for 2011, expecting returns equal to or exceeding 2010 performance. Some use a rule of thumb, “overweight stocks in the portfolio when 10-year treasury yields are below 3%.” Of course, that is the situation we are in.
Emerging market stocks are likely to continue to outperform U. S. stocks. The developed international markets are likely to be slow to recover and some (especially Europe)may continue to experience debt crisis. U. S. companies with a global reach are likely to outperform those with only a domestic focus.
Need Help?
If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.
Happy Investing!
Royce
Royce L. Ruckman, CPA, AEP
Director of Investment Services
United Methodist Foundation of Indiana, Inc.
1001 N. Western Ave., Suite D, Marion, IN 46952
toll free 866-669-2327, local 765-664-2327,
cell 765-661-6804
e mail rruckman@niumf.org
Visit our web site at http://www.niumf.org
2010 Market Review January 5, 2011
Posted by royceruckman in Investments.add a comment
The stock market finished 2010 with a very strong final month and a strong year. Of course the year was a roller coaster ride with a mix of good and bad months. For most of 2010 the market traded on news and fear of more bad news and ignored market fundamentals. As 2010 neared the end of the year, the market began to give more credibility to strong fundamentals. For much of the year, traders were concerned with the possibility of increased inflation, a possible double-dip recession, and of course, the credit crisis in Europe. Those fears now seem to be much abated.
From its low in March 2009, the S&P 500 is up 86%. The Nasdaq and Russell 200 indexes more than doubled in the same time. The S&P 500 ended the year with its strongest December since 1987. The December rally represented almost half the index’s appreciation for the entire year. The S&P Total Return Index was up 15.06% for 2010, an outstanding year. As they have done after previous recessions, small cap stocks led other domestic equities for most of the year. The Russell 2000 index (small cap’s)almost doubled the gains of the S&P.
With such a strong stock market in 2009 and 2010, we would assume most investors achieved outstanding returns during those two years. Wrong! For most of 2009 and 2010, investors continued to pour money into bond funds in spite of historic low interest rates. Many investors have continued to flee stocks and move money into bonds seeking safety. However, with historic low interest rates, and almost no possibility of rates going lower, those investors have set themselves up for a second round of severe losses. This is typical for individual investors ( and many church committees). They often move into stocks after a prolonged rally, often shortly before a severe downward correction. Those investors will often ride the market down and decide to get out near a market bottom. They then often sit on the sidelines waiting for the market to stabilize before moving back into stocks. It has been proven in many studies that investors would earn far more if they would develop a good market strategy, then stay with it through good markets and bad.
Several studies have shown that the average performance of mutual fund investors is approximately half the performance of the mutual funds they invest in. How can that be you say. It is because typical investors move into mutual funds after much of a rally has occurred and get out after a prolonged market decline. Thus their performance is half what it would have been if they had stayed fully invested throughout the market cycles.
I have also seen studies comparing hypothetical performance if an investor had invested at market peaks versus investing at market bottoms. Of course those who invested near market bottoms did better. However, even those investing at market peaks and remained invested through subsequent up and down markets outperformed typical investors who moved in and out of the market. There is an old saying, “investing success is about time in the market, not about timing the market.”
Need Help?
If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.
Happy investing!
Royce
Royce L. Ruckman, CPA, AEP
Director of Investment Services
United Methodist Foundation of Indiana, Inc.
1001 N. Western Ave., Suite D, Marion, IN 46952
toll free 866-669-2327, local 765-664-2327,
cell 765-661-6804
e mail rruckman@niumf.org
Visit our web site at http://www.niumf.org
