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The Markets To
dredge up an old cliché, “like a knight
in shining armor,” the Federal Reserve swooped in last
Friday with a shot of adrenaline—in the form of a cut
in the discount rate—that pepped up the markets. The
discount rate is the interest rate charged to banks and other
depository institutions that borrow money from the Federal
Reserve. For various reasons, it’s largely a symbolic
rate since very few financial institutions actually borrow
money in this manner. However, that didn’t matter to
the financial markets. More importantly, this symbolic move
led some analysts to believe that it may open the door to
the Federal Reserve cutting the all-important federal funds
rate in the near future, according to The Wall Street Journal.
The cut in the discount rate last Friday
sparked a large rally in the stock market, which helped drive
the Standard & Poor’s
500 index to its biggest one-day percentage gain in more
than four years, according The Wall Street Journal. Unfortunately,
it wasn’t enough to offset losses earlier in the week.
At
its lowest point last week, the Dow Jones Industrial Average
was down more than 10%, a threshold that typically
signifies a “correction.” As Barron’s pointed
out, the stock market was on a streak of 1,591 days without
experiencing a 10% decline. That was the second longest streak
since World War II. So the current decline is, if anything,
overdue.
Data from Ned Davis Research helps put
the current decline into even better perspective. Their research
shows
that between
1/2/1900 and 6/28/2006, the Dow Jones Industrial Average
declined 5% or more an average of 3.3 times per year. They
also found that a 10% or more decline occurred an average
of 1.1 times per year. And finally, they discovered that
a decline of 20% or more occurred on an average of once
every 3.4 years.
Yes, the markets can be volatile. However,
as the data shows, volatility is
normal, it’s
expected, and as advisors, we try to plan accordingly.
| Returns through 08/17/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-1.2 |
4.9 |
15.4 |
9.9 |
8.0 |
5.4 |
| Nasdaq Composite |
-1.6 |
3.7 |
16.1 |
12.3 |
12.8 |
5.0 |
| Standard & Poor's 500 |
-0.5 |
1.9 |
11.4 |
10.4 |
8.9 |
4.8 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
Top Headlines:
- Retail Sales rose 0.3% for the month of
July, 0.4% excluding autos. This marked a significant turnaround
from an overall decline of 0.2% in June. (8/13)
- This week Goldman Sachs (GS) announced they would inject
$3 billion into its Global Equity Opportunities hedge
fund which has lost nearly 30% of its value in the last
week. Goldman insists that this is not a bailout but
rather an opportunity to capitalize on "exciting
market conditions". (8/14)
- The Consumer Price Index (CPI) for July saw a 0.1% increase,
with a 0.2% increase in core CPI. This marks the slowest
inflation rate in eight months, with falling energy
prices helping offset rising medical and apparel costs.
(8/15)
- The Japanese yen traded to a 13-month high against the
USD in early hours on Thursday as traders cut risk
by buying back yen instead of investing it in higher
yield investments such as securities. This buyback was
triggered
by continued worries in the sub-prime market. (8/16)
- Countrywide Financial (CFC) shares plummeted this week
after reports that the lender drew from an $11.5
billion credit facility in efforts to boost liquidity. (8/16)
IT’S BEEN FIVE YEARS SINCE THE SARBANES-OXLEY
ACT (SOX) WAS ENACTED in response to corporate scandals at firms
such as Enron, Tyco, and WorldCom. For directors, officers, auditors,
securities
analysts, and corporate lawyers at companies (foreign and
domestic) that have registered equity or debt securities under the Securities
Exchange
Act of 1934, life is a lot more complicated.
However, SOX’s strict requirements on corporate
governance, securities analysis, and audit work are paying off. Today,
according to a study
by the Center for Audit Quality, an arm of the American Institute
of Certified Public Accountants, 60% of investors report that SOX has
increased
their confidence in U.S. capital markets.
Corporate complaints about the high cost of complying
with the law seem lost on individual investors. Just 22%
of those surveyed said the law
should be eased to address concerns about its costs and any
negative effect on U.S. competitiveness. Only 5% of those
surveyed said adopting
the law was a bad idea.
Accountability and transparency are always
a plus from an investor’s
standpoint.
LAST WEEK, THE INVESTMENT COMPANY INSTITUTE issued
its report titled, The U.S. Retirement Market 2006. Among the key findings:
- Total
U.S. retirement accumulations reached $16.4 trillion
in 2006, an 11% increase over 2005. Retirement assets now
account for nearly
40% of all U.S. household financial assets, compared
with 24% two decades ago.
- Employer-sponsored retirement plans play
a key role in helping American workers accumulate retirement assets.
Nearly two-thirds of Americans’ retirement
assets are held in employer-sponsored retirement plans.
- About half of Americans’ retirement
savings are held in defined contribution plans and IRAs.
Assets in defined contribution (DC)
plans and IRAs continued to grow more rapidly than assets
in other types of retirement plans in 2006, increasing
15% compared with 8% asset growth
for other retirement plans. Together, assets in DC plans
and IRAs represented 51% of retirement assets in 2006,
up from 39% in 1990.
The good news is that, in a working world where the
corporate pension
has gone the way of the drive-in movie, Americans are accepting
more responsibility for funding their own retirement.
THE SALAD OF YOUTH
When
summoning inspiration for a summer salad, tossing in five
special veggies can boost
your meal’s antioxidant power significantly. According
to RealAge.com, a handful of artichokes, radishes, broccoli,
red chicory, or leeks can improve your defenses against everything
from wrinkles to heart disease. Of the 27 vegetables tested,
the artichoke led the antioxidant pack and won extra points
for being rich in fiber and folate.
Best Regards,
P.S. Please feel free to forward
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