Category: Monthly Commentary

Monthly Commentary

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.

January 2010 – Market Commentary

Overview:
• US and International stocks were unable to maintain the gains they posted in November and December despite some positive earnings reports and economic data.  The month started off strong with the Dow gaining 1.5% on the first day of trading, but the final week of January pushed the S&P 500 to a loss of -3.6% for the month of January.

Economic News:
• US and International economic data still offered a mixed picture to investors.  In the US, Consumer confidence, durable goods orders, and manufacturing data showed some signs of strength.  The final week brought GDP growth of 5.7% in the fourth quarter.  Yet, housing remained weak as mortgage applications declined, initial jobless claims spiked in the last week of the year as unemployment remained at 10%.  2009 also so a 33% increase in personal bankruptcies in the US.

• International manufacturing was up in the UK, China, Germany, and the other Euro countries.   China’s economy grew by 8.9% in 2009, ahead of the 8% target established at the beginning of the year, and the China central bank announced  that they would be raising bank reserve requirements to slow growth.  However, Germany’s economy continued to show weakness, shrinking by over 5% in 2009, showing that not all nations are on the right track.

Regulatory News:
• The Obama administration announced that they would be instituting a tax on financial companies that received government aid in 2008 and 2009, and that the revenue would be used to help create liquidity for small loans.

• The US Treasury announced their largest auction of TIPS securities, to  meet increasing demands for inflation protected securities.

• Despite a protracted debate and a lot of criticism of the Fed’s role in the real estate bubble, Fed Chairman Ben Bernanke was affirmed for another term.

Corporate News:
• Earnings season started with Alcoa reporting a $277 million loss on slowing demand from construction and aerospace firms.

• Many companies had positive news:  Microsoft profit grew 65%; McDonalds profit was up 23%; Apple’s profit increased on continued strong demand for their products; and Goldman Sachs ended the year by adding $4.9 billion in profit, to bring the year to date profit to a record $13.4 billion.

• However, many companies are still down:  GE profits fell 19% in the fourth quarter; Caterpillar’s earnings were down 65% on lower orders; Citigroup posted a loss of $7.6 billion; and Morgan Stanley had it’s first loss since going public in 1986.

Index Performance – January:
US Large Cap Stock (S&P 500) -3.60%
International Stock (FTSE AW ex US) -4.28%
US Broad Bonds (Barcap Aggregate) +1.53%
US Government Bond (Barclay’s Govt) +1.45%
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.