Weekly Commentary

Weekly Commentary

Welcome to our weekly commentary. As always, feel free to call our office with any questions or comments that you may have.

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2100 Lake Eustis Drive, Tavares, FL 32778
Office (352) 343-2700
Fax (352) 742-2607

www.ruggiewealth.com
 

Around the Water Cooler

Happy Birthday on April 6th to RWM’s Kayla Hunt and Christopher Ruggie!
 

This week the changes to our Portfolio are affected by the sells listed below.
 

As part of our continuing portfolio analysis, we have sold the following positions this past week: JXI, RY, JNJ, AGG, AMGN, BAC’V, HD, IVV, EFA, IWN, VWO, IWF, IWD, MER’F, WGIFX, AFIFX, PRBLX, VALIX, MVALX, DODFX, RYHAX, SGENX and VHGEX.
 

Due to the sheer volume of trades we are making within our portfolio, we will not be providing a fund highlight again this week but expect to do so in next week’s commentary.  Also, due to the number of sales we are making, it would require too much space to provide a detailed explanation of all of the holdings we are selling.  However, what is important to know is many of the positions we are selling are not being sold because they have not performed well....in fact, many have performed extremely well.  Instead, it is more of a concern about the risk or aggressiveness of the holding in light of our thoughts on where the market may be heading in the near future.  Additionally, it is quite possible we may buy back into many of these holdings at a later point.  We are also taking this opportunity of "pulling some risk off the table" to sell more obscure holdings that may be held by only a small handful of clients and move the proceeds to a more moderate portfolio.  Finally, it should also be noted that some of the listings of positions being sold below are not being sold across the board to all clients.  When selling a position, among the things we evaluate for each client are:  tax consequences, client risk tolerance in comparison to overall holdings and have options been utilized to provide some protection to the holding.

One should understand, the majority of the trades we are making will provide for a slight reduction of risk in most cases (with a few exceptions) but will not eliminate market risk.  We are simply taking some more aggressive holdings off the table and (again in most cases) reinvesting in more moderate holdings.  It should also be noted, many clients will still be holding positions we would consider as more aggressive (such as QQQQ, Fairholme, Berkshire Hathaway and Vanguard Viper Growth to name a few).  Should we be wrong and the market continues to surge as it has done in the past 13 months, our clients should still benefit from the gain in the market but probably not to the full extent of the market.  If we prove to be wise in our reduction of risk and the markets falter, we are still invested in the market and will participate in some of the losses but our goal is to reduce the participation on the downside.  If we experience a down market, we will look at the potential opportunities present at that point and how this would impact the goals of our clients.
 

THE FIRST QUARTER IN REVIEW

STOCK MARKET RALLY CONTINUED

The stock market followed 2009's powerful rally with a strong performance in the first quarter. The S&P 500 rose 4.9%, excluding dividends, which was its best first-quarter percentage gain since the heady days of 1998, according to MarketWatch. Strong corporate earnings, solid corporate balance sheets, and upbeat manufacturing data helped support the stock market's bullish results, according to The Wall Street Journal.

It wasn't a straight line up, though. Between late January and early February, the Dow Jones Industrial Average dropped more than 7% as news of credit tightening in China, sovereign debt woes in Greece, and debates in Washington on healthcare and bank reform helped scare investors, according to The Wall Street Journal. The scare was brief as investors quickly "bought the dip" and sent the averages higher by the end of the quarter.
 
INTEREST RATES WERE STABLE

The yield on the 10-year Treasury was essentially unchanged during the quarter as investors continued to snap up all the debt the government offered, according to The Wall Street Journal. Demand for corporate and high-yield bonds was robust which helped keep those rates at relatively low levels.

Some investors are concerned that our large budget deficits may result in a glut of bonds, which could cause interest rates to rise substantially. That could put the brakes on an economic recovery, but this worry has not come to fruition--yet.

THE DOLLAR ROSE AGAINST THE EURO

The big story in foreign currencies during the first quarter was the strength of the dollar against the euro. According to The Wall Street Journal, the dollar rose 6% against the euro as debt concerns in Greece, Portugal, and Spain weighed on the common currency. Investors are also evaluating the relative strength of the U.S. economy versus the euro countries and it appears that a consensus is building that our country may grow faster. If that occurs, it may mean interest rates could rise sooner in the U.S., which would also help support a strengthening dollar.

DOUBLE DIP RECESSION LOOKING LESS LIKELY

Recent economic indicators suggest the economy is healing from the severe recession of 2008-2009. For example, the Commerce Department said consumer spending rose in February for the fifth consecutive month. Consumer spending makes up about 70% of gross domestic product, according to Morningstar, so a rise in this number bodes well for the economy. The manufacturing sector is looking robust, too, as the ISM manufacturing diffusion index rose to 59.6% in March, which was its highest level since July 2004, according to MarketWatch. Readings over 50% indicate that more firms said business was improving than said it was worsening. It was also the eighth straight monthly increase.
 
Just after the quarter ended, the Labor Department released the March payroll report and it showed a gain of 162,000 payroll jobs. It was the third gain in the past five months and the largest increase since March 2007. This report, coupled with other economic data, prompted Robert Hall, the head of the National Bureau of Economic Research’s Business Cycle Dating Committee, to say that it is "pretty clear" that the deepest recession since the 1930s is over, according to a Bloomberg report. Hall's organization is the "official" source on declaring the beginning and ending of recessions. Jeffrey Frankel, another member of the business cycle dating committee, said, "The most likely date for the recession’s end would be midyear of 2009," according to the same Bloomberg report.

This mid-2009 date would seem to confirm the validity of the stock market rally that we've experienced over the past year. The market started rising in March 2009--not too far ahead of the time that Frankel suggested the recession ended.
 

SUMMARY

The stock market performed well in the first quarter as earnings growth continued to shine and the economy continued to mend. Longer-term issues such as large government deficits, housing weakness, and the withdrawal of stimulus money hang over the markets like a black cloud, but so far, these concerns have not deterred investors. 
 

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable or not available.

"Economic progress, in capitalist society, means turmoil."
-- Joseph A. Schumpeter

Best regards,

Thomas H. Ruggie, ChFC, CFP

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.