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Monthly Archives: May 2009

Incoming Data Supports Base Case 2009

Financial markets digested the long awaited report on Q1 2009 Gross Domestic Product (GDP) last week, as well as more timely reports (i.e. for April and Q2) on manufacturing, housing and consumer sentiment. On balance, that data confirmed that the U.S. economy remained quite weak in Q1 2009, but as the quarter progressed, signs that the economy stopped getting worse outnumbered those suggesting that the economy was still accelerating to the downside. Looking ahead, the data due out at the end of the week has the potential to be market moving, with the release of the U.S. governement’s bank "stress tests" and the monthly chain store sales data for April both due out on Thursday, and the April employment report due out on Friday.

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Earnings Respect

With all of the uncertainty and rapid developments of recent months, markets have been driven more by the near-term announcements of actions by policy makers. That may be beginning to change as investors turn their attention to fundamental drivers of stocks. Over the long-term, earnings are the most important driver of stock market performance. Historically, stock price performance closely tracks expectations for earnings. Now that most of the companies in the S&P 500 have reported their first quarter earnings results, it is a good time to take a look at the earnings expectations for this year and for 2010.

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Is the Market Turning Around?

Here we are with the blessings of spring upon us.  In these recent weeks the financial markets have started to rebound from the lows hit this winter. Yet, broad equity price indices remain well below the 2007 peak levels and from a long-term perspective are about 40% to 45% below the peaks hit in 2000 and 2007.  So, we have a long road to a full recovery however there are some signs that the market’s recovery is progressing.

The first quarter company earnings reporting season is closing and it looks like things are turning around, after generally bad earnings reports for Q408.  The earnings turn looks to be partly due to a reduction in bank loan write-offs, but also due to company cost cutting and, despite dire predictions of deflation, some ability to avoid a collapse in the prices of goods and services sold.  Excluding energy, the Consumer Price Index (CPI) is up 2.2% over the last year including modest gains over all three months of this year.


The Importance of Dollar Cost Averaging

Are you wondering how to get into the markets? Almost everyone has heard of it, but what exactly does “dollar cost averaging” mean and why is it important to investing?

Dollar cost averaging is simply defined as purchasing the same dollar amount of an investment on regular intervals, regardless of where the investment is currently priced. Your 401(k) is a good example: you contribute the same amount of money to your retirement plan month in and month out. During times when the market is doing well, you purchase fewer shares; during times when the market is down, you purchase more shares.