Category: Monthly Commentary

Monthly Commentary

June 2010 – Market Commentary

Overview
• A slew of downbeat data sent the markets lower for the second consecutive month.  The Institute for Supply Management’s index of manufacturing activity fell unexpectedly to its lowest level of the year; auto makers reported lower US sales in June, and the Labor department announced a rise in claims for jobless benefits.

• Erasing what had started to be a strong month of corporate earnings and a 2.58% gain in the US stock market, the S&P 500 fell almost 8% in the last 8 trading days to finish a negative 5.39% return for the month.  In a reversal in the bond markets, corporate bonds – led by residential mortgage backed securities, outpaced government bonds in June.  The aggregate bond market gained 1.46%.

Economic News
• US companies have accumulated record levels of cash on hand in a clear sign of persistent worries about the financial markets and about the sustainability of the economic recovery.  It’s yet to be seen if large cash stockpiles are a permanent response to the credit dislocation in 2008 and 2009 or a temporary reaction.  Likewise, consumers are continuing to improve their own household balance sheets by reducing credit card debt by $8.5 billion in April.  Revolving credit balances now stand at $838 billion, down from a record peak of $976 billion in September 2008.

• EU ministers set up a $527 billion backstop facility to support sovereign debt issues in struggling EU nations.  The US called for European Bank stress test results to be made public as the European Central Bank indicated that Euro Banks will face $240 billion in asset write downs due to sovereign debt crisis.  The Euro hit a four year low on 6/2.

• First quarter GDP was revised downward to 2.7% from 3%.  The US economy added 41,000 private sector jobs in May.  Total new jobs were 431,000 with the balance of additional jobs being Census employees.  The unemployment rate fell to 9.7%.

Regulatory News
• The House agreed to a sweeping rewrite of the nation’s financial regulations in June, moving the initiative one step closer to becoming law.  The measure would give regulators new powers to seize and dismantle failing financial companies; bolster the Federal Reserve’s authority over the country’s largest firms; toughen scrutiny over exotic financial instruments known as derivatives; and create a new regulator to police mortgages and credit cards among other things.  Focus now shifts to the Senate.

• In a surprising move, the Chinese government agreed to relax restrictions on its currency, and allow it to appreciate versus other major currencies.  The move is expected to be a gradual increase that will help improve trade balances between China and other nations as domestic demand is likely to increase.

Corporate News
• BP agreed to suspend its dividend for the next three quarters and to fund a $20 billion fund for claims related to the Gulf oil spill.  HP announced that it will be investing roughly $1 billion to revamp its technology services division, and that the increased efficiencies will result in the shedding of 9000 jobs in that division. Fannie Mae and Freddie Mac were forced to delist from the NYSE at the request of their regulator.

Market News
• Fear and uncertainty remain prevalent in the market, as volatility has climbed back to early 2009 levels.

• After months of pounding, international equities were less affected in June  – down 1.34% compared to US stocks which were down 5.39%.  Commodity prices have fallen 11% in 2010, after a strong gain of 19% last year.  Concerns over global economic slowdowns, primarily in Europe, are seen as the primary cause.

Index Performance – June:
US Large Cap Stock (S&P 500) -5.23%
International Stock (FTSE AW ex US) -1.12%
US Broad Bonds (Barcap Aggregate) +1.57%
US Government Bond (Barclay’s Govt) +1.71%
Cash (ML 3 Mnth T-Bill) +0.01%

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations and high net worth individuals with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com.

Important Disclosure

Past performance is not a guarantee of future results and there is always a risk that an investor may lose money.  Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated.  Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results.  For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return.   RWM’s form ADV is available upon request.  The form ADV is the RIA disclosure document that outlines material arrangements and business practices.

May 2010 – Market Commentary

Overview
• US Treasuries and the dollar were the big winners in May as the ‘flash crash’ and the worsening crisis in Europe resulted in an official market correction.  International stocks led the decline – falling 10%, with US stock falling closely behind down 8%.  US Government bonds enjoyed a boost from the flight to quality, gaining 1.53% – while corporate bonds fell slightly.

• The European Union agreed on a one trillion dollar bailout package in an effort to stop the growing sovereign debt crises from spreading throughout Europe.  The markets remain uncertain, however, that it will succeed.  The unprecedented move casts aside the notion that each EU country should manage its own finances and ushers in an era in which the member of the common currency take on responsibility for each other’s fiscal troubles.

Economic News
• US inflation fell to its lowest level in 44 years as high unemployment and excess production keep wages and prices down in much of the developed world.  Increasing production related costs are a strong signal, however, that prices may move higher soon.

• Contrary to conventional wisdom, mortgage rates fell below 5% in May providing an unexpected windfall for American homebuyers.  Rates were pushed lower by international money flowing in to the safe haven of US Treasuries.

• Existing home prices have stabilized and sales of newly built homes soared in May.  The outlook remains weak, however, as concerns about the strength of the economy linger.

• Fallout continues from last month’s explosion on the Deepwater Horizon drilling rig and the massive oil leak into the gulf that has ensued.  The direct impact on the economy remains unclear but its effect on the food industry is expected to be severe.

Regulatory News
• The Senate approved the most extensive overhaul of financial-sector regulation since the 1930’s.  If approved by the House, the legislation would set up new regulatory bodies and restrict the actions of banks and other financial firms.

• Federal prosecutors and securities regulators opened a criminal investigation into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals.  The banks under scrutiny include JP Morgan Chase, Citigroup, Deutsche Bank, and UBS.

Corporate News
• Apple surpassed Microsoft in market value, marking a changing of the guard in the technology sector.  GM reported its first quarterly profit in three years, driven by sharp cost reductions and improved global sales.  Cisco posted a 63% jump in quarterly profit signaling that a rebound in technology spending is gaining momentum.

Market News
• Reminiscent of late 2008 and early 2009, extreme volatility and late days sell offs returned to the market in May.  Major US and International markets have fallen by more than 10% from their April highs – signaling an official market ‘correction’.

• The stock markets were jolted by a sharp, unexplained selloff in May that ultimately rebound just as quickly.  Many trades between 2:20pm and 3:00pm on Thursday, May 6 were deemed erroneous and were canceled.  The precise cause of the event has yet to be determined – in the mean time, the major exchanges agreed to introduce temporary trading limits on individual stock moves.

Index Performance – May:
US Large Cap Stock (S&P 500)                      -7.99%
International Stock (FTSE AW ex US)          -10.5%
US Broad Bonds (Barcap Aggregate)             +.84%
US Government Bond (Barclay’s Govt)        +1.53%

Cash (ML 3 Mnth T-Bill)                               +0.04%

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations and high net worth individuals with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com.

Important Disclosure

Past performance is not a guarantee of future results and there is always a risk that an investor may lose money.  Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated.  Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results.  For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return.   RWM’s form ADV is available upon request.  The form ADV is the RIA disclosure document that outlines material arrangements and business practices.

April 2010 – Market Commentary

Overview
• The US economy grew at an annual rate of 3.2% in the first quarter.  Although slower than the fourth quarter of 2009 – the underlying trends of manufacturing growth, strong consumer spending, and low inflation – are encouraging.   The turmoil in Europe and the difficulty smaller business still face in borrowing continue to dampen broader enthusiasm.

• For the remainder of the year, the direction of the economy – and security prices – will be driven by corporate earnings, employment, broader economic measures such as those associated with housing and manufacturing, inflation, and the regulatory changes being enacted in the US and throughout Europe.  Unforeseeable events may have the greatest impact on prices in the short term.

Economic News
• The US economy grew at an annual rate of 3.2% in the first quarter.  Although slower than the fourth quarter of 2009 – the underlying trends of manufacturing growth, strong consumer spending, and low inflation – are encouraging.   The turmoil in Europe and the difficulty smaller business still face in borrowing continue to dampen broader enthusiasm.

• Employers added 162,000 jobs in March; the biggest monthly gain in three years, and jobless claims fell slightly.  The rate remains high at 9.7% however, and the average length of unemployment rose to the highest point since recordkeeping begin in 1946: more than 31 weeks.

• Inflation has remained low although raw material and other producer costs jumped in March.  The Federal Reserve remains split on its inflationary outlook and has decided to keep rates low.  We expect the Federal Reserve will continue to monitor inflation closely and begin to raise the fed funds rate accordingly.  Current bond prices reflect the expected inevitable impact of

Regulatory News
• The Federal Deposit Insurance Corp.’s board on Tuesday extended its TAG (Transaction Account Guarantee) program providing unlimited deposit insurance for certain business accounts.  The program was set to expire June 30, 2010 and is now set to expire December 31, 2010.

Market News
• The US equity rally continued through April driven by institutional investor confidence in corporate earnings – despite lingering trouble in housing, debt levels, and lending.   The S&P 500 has gained 1.58% in April.  The debt crisis in Greece has precluded European markets from participating in the rally and the international stock index fell .75%.  Investment grade bonds have remained steady, returning 1% in April, led again by corporate bonds.

Index Performance – April:
US Large Cap Stock (S&P 500) +1.58%
International Stock (FTSE AW ex US) -0.75%
US Broad Bonds (Barcap Aggregate) +1.04%
US Government Bond (Barclay’s Govt) +0.95%
Cash (ML 3 Mnth T-Bill) +0.02%

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations and high net worth individuals with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com.

Important Disclosure

Past performance is not a guarantee of future results and there is always a risk that an investor may lose money.  Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated.  Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results.  For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return.   RWM’s form ADV is available upon request.  The form ADV is the RIA disclosure document that outlines material arrangements and business practices.

March 2010 – Market Commentary

Overview:
• Consumers began spending and companies began hiring again in March.  The US stock market completed its best first quarter since 1999 as the S&P 500 gained 5.39% on stronger than expected corporate earnings and continued signs that the broader economy is improving.   Unemployment held steady, the EU agreed on a deal to bailout Greece, and the market responded positively to the passage of landmark healthcare legislation.  Overall bond values fell slightly with the highest quality bonds fairing the worst.

Economic News:
• The DOL’s report showed that the unemployment rate remained flat at 9.7%.  Although the report indicated a rise in temporary workers, the figures were viewed as a clear sign that the unemployment had topped out in the fourth quarter of 2009.

• A Government report showed strong growth in fourth quarter corporate profits as the economy rebounded from a deep recession.  GDP growth was revised slightly downward to an annual rate of 5.6%.

• Downward pressure on wages continued to keep inflation low as a report showed that consumer prices were unchanged.

Government News:
• The Fed announced an end to its $1.25 trillion program to purchase mortgage backed securities – which had been a primary support for the US economy.  Markets took the news in stride signaling strength in the overall capital markets.

• The Supreme Court rejected a lower court ruling that protected mutual fund managers from liability related to excessive mutual fund fees.

• A barrage of insider trading scandals broke in March:  an employee of hedge fund Moore Capital was arrested on insider trading charges amid a major crackdown in the UK;  Appaloosa and Carlson Capital are being examined by regulators for bets made against stocks in new offerings; a UBS investment banker has been accused of improper trading in advance of numerous healthcare mergers; and  more than a dozen Wall Street banks and investment firms are suspected of being involved in price fixing in the muni-bond market.

• Four banks were seized by the FDIC in March, bringing the total since the beginning of 2008 to 206.

Corporate News:
• Google stopped censoring its search results in China.  In doing so, they risk losing their footprint in what is widely viewed as the most important consumer market in the world.  The move was met with resentment and confusion in China as users, employees, and partners brace themselves for the Chinese Government’s reaction.  Ultimately, the Chinese Government blocked access to the Google site.

• US corporations are emerging from the recession leaner and meaner but with fewer employees and lots of cash.  Cash acquisitions of US corporations more than doubled in the first two months of 2010 as stockpiles of cash begin to loosen.

• Oracles profit fell 11% amid costs from its takeover of Sun Microsystems – but sales rose for the second straight quarter.  Best Buy’s earning rose a better-than –expected 37%.  Ford posted a 43% rise in February sales compared to last year.  FedEx profits doubled as the global economic recovery broadened.

• US car sales rose early in March indicating that the industry’s recovery is continuing to pick up speed.  Chinese automaker, Geely, bought Volvo from Ford for $1.8billion.  The move vaults China onto the global automotive stage.

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations and high net worth individuals with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com.

Important Disclosure

Past performance is not a guarantee of future results and there is always a risk that an investor may lose money.  Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated.  Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results.  For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return.   RWM’s form ADV is available upon request.  The form ADV is the RIA disclosure document that outlines material arrangements and business practices.

February 2010 – Market Commentary

Overview:
• US stocks turned back to gains in February after a very bumpy ride to the finish line, while Internatonal equities finished slightly lower. The Dow closed below 10,000 for the first time in three months on the 9th, but managed to rally to close at 10,325, gaining 2.6% for the month. Issues with Greece’s national debt sent US equities down by over 2.5% in one day, and continued concern over the state of the economic recovery weighed on investors.  The US unemployment rate dropped to 9.7%, but weekly jobless claim data is still lackluster.  The Fed re-assured investors that any changes in rates would be measured and not likely to occur in the immediate future.

Economic News:
• US housing data continued to be mixed, as prices in one third of major metropolitan areas showed gains, despite the fact that new and existing home sales dropped by 11% and 7.2% respectively.  Fannie and Freddie announced they would be buying back up to $200 billion in delinquent loan securities from the market.

• US worker productivity continued to rise, up 5.1% from a year ago, as manufacturing hit its highest level in 5 years, and industrial production gained for the seventh straight month.  Capital spending on non-military assets by companies has increased over 9% from a year ago.

• As Greek debt floundered, other Euro nations agreed to some form of a bailout for the country, putting significant downward pressure on the Euro versus the dollar.  The Greek issue is causing many to speculate about the long term viability of the Euro, and conversations about the Euro replacing the US dollar as the world’s currency has all but ceased.

Government News:
• The Obama administration announced a $3.8 trillion budget that will cause an estimated $1.6 trillion deficit this year and is projected to be paid down to $700 billion by 2013.  Bush tax cuts that benefited households making over $250,000 will likely not be renewed by the administration in an effort to increase tax revenue.

• The Chinese government sold a portion of its US Treasury portfolio in February, dropping China down to the second largest holder of US Treasury securities after Japan.

Corporate News:
• The month had some winners and losers.  Retailers Home Depot, Target, and Macy’s all had strong growth, but warned about lower forecasts as consumers continue to be reluctant buyers.  Retail sales posted a small gain of 0.5% for the month, but personal savings has continued to climb, now at 4.8% of income.

• Some deals were getting done, as Coke announced it will try and buy-out its bottlers, consolidating the business under the soda manufacturer. The deal is valued at $12 billion. The CME group announced that it will buy the Dow Jones index business for $675 million.  Mall operator Simon offered $10 billion to General Growth to buy all its operations.  General Growth went bankrupt last year on slowing consumer business.  If it goes through, Simon will increase its margin as the largest mall operator in the US, with 550 locations.

• HP, Coke, Pfizer, Cisco, and UBS were among the companies with higher earnings.  Meanwhile Exxon and Dell posted lower results.  In the auto arena, Toyota’s US sales plummeted by 16% as recalls were all over the news.  That was good news for GM and Ford, both of which posted double digit US sales growth.

Index Performance – February:
US Large Cap Stock (S&P 500) +3.10%
International Stock (FTSE AW ex US) -0.10%
US Broad Bonds (Barcap Aggregate) +0.37%
US Government Bond (Barclay’s Govt) +0.41%
Cash (ML 3 Mnth T-Bill) +0.00%

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations and high net worth individuals with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com.

Important Disclosure

Past performance is not a guarantee of future results and there is always a risk that an investor may lose money.  Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated.  Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results.  For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return.   RWM’s form ADV is available upon request.  The form ADV is the RIA disclosure document that outlines material arrangements and business practices.