October was a tough month

Stocks retreated in October and corporate profits have declined over the last quarter. To add insult to injury, super storm Sandy is on track to be one of the top five costliest storms in U.S. history. However, the S&P 500 started November off on a good foot and yesterday scored its best day in seven weeks, as bullish consumer confidence and private-sector jobs data gave investors reason to cheer.

Ironically, hiring and the unemployment rate both increased in November. In another encouraging sign, U.S. consumer confidence jumped in October to its highest level in more than four years, the Conference Board said. In addition, retail sales were strong last month. This shows that consumers are not running scared and opening their wallets. Along this line, the U.S. manufacturing sector expanded modestly last month, but producers remain cautious about hiring and face a sustained slump in exports.

Overseas, official and private-sector factory surveys in China showed the world's second-biggest economy regaining some traction.

As previously noted, corporate profits have been on the decline, and I continue to read about layoffs at some large firms. That being said, one recent and one upcoming event may help the stock market and economy.

First, super storm Sandy is a tragedy and many peoples' lives have been turned upside down. However, there will be reconstruction and repairs, along with consumer and business purchases of replacement electronics, furniture, appliances, cars, etc. This may result in a boost to the economy going into next year. Unfortunately, for those without flood insurance, the losses could be quite debilitating.

Second, elections will be decided next week. Regardless of who wins, the next step will be for the powers that be in D.C. to come together and come up with some workable solutions and get past the gridlock currently taking place. If their solutions are practical and bring some sense of certainty, then we could see hundreds of billions of dollars leave the sidelines and be put to work. Whether it is companies hiring workers, expanding their facilities, consumers spending more, or investors who begin sticking their toes back into the stock market could begin to happen.

There are still major challenges ahead for whoever prevails in next week's election; Europe's economic woes, slowing global economies, weak job growth, stagnate wages and more potential fighting and gridlock in D.C., etc. However, adversity can bring opportunity, and quite honestly over the past couple of years we've faced huge political adversity and just recently a major economic adversity. Once the elections are over, how people and businesses react to the results will be the major factor on where we go from here.  

Points to Ponder 

Natural gas is now incredibly cheap and easy to acquire, while other energy sources remain expensive or hard to get (or both). Not surprisingly, gas is already winning: Coal is being pushed out, nuclear has stalled, and wind and solar projects are being canceled.

             Peter Schwartz, Wired Magazine, September 2012 

Individual and institutional investors are insuring that they will lose money on [U.S.] Treasuries [Bonds] [after inflation] over the next 10 years when they by-pass the chance to make money in equities.

             Noah Blackstein, Barron’s, July 14, 2012 

Bill Gross is not the first high-profile person to herald the death of equities; he will not be the last. Such pronouncements are always wrong, and much more often than not they actually signal the

imminence of an era of excellent returns.

            Nick Murray, FA Magazine, September, 2012 

Equities are an ugly asset class –one that is more likely than almost any other to lose investors a significant amount of money at those times when they can least afford it. It is the reason why equities have been priced to deliver good returns historically. And it is the reason why we believe equities are very likely to be priced to deliver strong returns into the indefinite future.

            Ben Inker, GMO Whitepaper, August 2012

 

Quotes 

"The worst boss anyone can have is a bad habit."

                        Monte Crane 

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

                        Mark Twain 

"To preserve independence, we must not let our rulers load us with perpetual debt. We

must make our election between economy and liberty, or profusion and servitude."

                        Thomas Jefferson

"Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline."

                        Philip Roth

 

Tony Moeller, CPA 

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy.  A risk of loss is involved with investments in the stock and bond markets.  

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