Weekly Commentary Sep26 2011
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Weekly Commentary Sep26 2011

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Weekly Commentary Sep26 2011 Weekly Commentary Sep26 2011 Document Transcript

  • Hyre & Associates Weekly Commentary September 26, 2011The MarketsThe Federal Reserve did “The Twist,” but the financial markets ended up in “A Knot.”In a much anticipated action dubbed “Operation Twist,” the Federal Reserve announcedlast week it would reshuffle its balance sheet by selling $400 billion of shorter-termTreasury securities and use the proceeds to buy longer-term securities. The Fed said ithopes the action will lower longer-term interest rates and, “contribute to a broad easing infinancial market conditions that will provide additional stimulus to support the economicrecovery.”So far, as it relates to interest rates, the Fed’s action has worked. The yield on the 30-yearTreasury bond declined from 3.2 percent the day before the Fed’s announcement to 2.9percent just two days later, according to data from Yahoo! Finance. That’s a ratherdramatic decline for such a short period.Unfortunately, the stock market failed to respond positively to the Fed’s announcementas the S&P 500 index lost 6.4 percent for the week. The market’s drop, though, wentbeyond disappointment in the Fed’s action. The following also contributed to themarket’s red ink: • Intensified fears of a Greek default. • Rising concern of a world-wide financial crisis, with sovereign debt at the epicenter. • Growing signs of sluggish economic growth in China, which had been one of the few countries immune to economic turmoil. • A 13 percent drop in the price of copper on Thursday and Friday of last week, which is concerning because the price of copper is often viewed as a proxy for worldwide industrial growth. Sources: Wall Street Journal, MarketWatch, BloombergWith the market’s blood pressure rising, it reminds us of what flight attendants often say,“Ladies and gentlemen, the Captain has turned on the fasten seat belt sign. We are nowcrossing a zone of turbulence. Please return to your seats and keep your seat beltsfastened. Thank you.”Likewise, as your “Financial Captain,” we know there may be market volatility along theway, but, as always, we’re focused on trying to help you arrive safely at your financialdestination. Data as of 9/23/11 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
  • Standard & Poors 500 (Domestic Stocks) -6.5% -9.6% -1.1% -1.5% -3.0% 1.3%DJ Global ex US (Foreign Stocks) -8.2 -20.3 -13.0 -4.4 -3.7 5.210-year Treasury Note (Yield Only) 1.8 N/A 2.6 3.8 4.6 4.7Gold (per ounce) -5.9 19.8 30.9 23.4 23.6 19.3DJ-UBS Commodity Index -9.1 -11.9 3.3 -7.3 -1.9 4.3DJ Equity All REIT TR Index -8.8 -5.2 3.7 -0.9 -2.0 9.9 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. AN OFTEN OVERLOOKED ASPECT OF SUCCESSFUL STOCK INVESTING is the importance of dividends. In bull markets, investors tend to focus on price appreciation, meaning, they look for stocks that can increase in price. In heady times like the late 1990s, investors feasted on stocks that would double or triple in a matter of months. Watching a stock go from $20 a share to $40 or $60 a share is exhilarating and makes for good cocktail party chatter. On the other hand, watching a stock sit at $20 a share for several years while you collect and reinvest a 3 percent dividend is rather boring and not worth sharing on the social circuit. However, just like the old story about the tortoise and the hare, the slow and steady growth of dividends plays a very important role in making money grow over time. The past 10 years is a great example of how dividends have helped improve the returns of an otherwise disappointing stock market. Here’s the data: • For the 10 years ending September 23, 2011, the S&P 500 index had a positive average annualized return of 1.3 percent excluding reinvested dividends. • For the 10 years ending September 23, 2011, the S&P 500 index had a positive average annualized return of 3.6 percent including reinvested dividends. • As shown above, receiving dividends and reinvesting them added 2.3 percentage points per year to an investor’s return compared to the return generated by price appreciation alone of the underlying stocks in the S&P 500. Sources: Morningstar, Yahoo! Finance In today’s environment of low returns, finding a way to possibly eke out an extra 2.3 percentage points of return per year is attractive. Over a longer period, receiving dividends and reinvesting them has accounted for one- third of the total return of the S&P 500 index over the past 80 years, according to Standard & Poor’s. Standard & Poor’s also points out the following benefits of dividends: • Dividends allow investors to capture the upside potential while serving as a hedge in down markets.
  • • When bond yields are low, like they are now, dividend paying stocks might be a way to enhance an investor’s current income.Just like any other investment, though, you need to figure out how dividends fit withinyour overall investment strategy. Are you looking for dividends to provide stability,income, or growth within your portfolio? Or, perhaps it’s some combination of all three.Considering how dividends fit within our clients’ portfolios is just one more way thatwe’re trying to add value.Weekly Focus – Think About It“Do you know the only thing that gives me pleasure? Its to see my dividends coming in.” --John D. RockefellerBest regards,Phil ConstansWealth AdvisorP.S. Please feel free to forward this commentary to family, friends, orcolleagues. If you would like us to add them to the list, please reply to this e-mailwith their e-mail address and we will ask for their permission to be added.Securities offered through Raymond James Financial Services, Inc., MemberFINRA/SIPC.* This newsletter was prepared by Peak Advisor Alliance.* The Standard & Poors 500 (S&P 500) is an unmanaged group of securities considered to berepresentative of the stock market in general.* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect theperformance 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 TreasuryNote as a benchmark for the long-term bond market.* Gold represents the London afternoon gold price fix as reported by the London Bullion MarketAssociation.* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for thecommodity futures market. The Index is composed of futures contracts on 19 physicalcommodities and was launched on July 14, 1998.
  • * The DJ Equity All REIT TR Index measures the total return performance of the equitysubcategory 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 twospecific periods.* Opinions expressed are subject to change without notice and are not intended as investmentadvice 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.* The information contained in this report does not purport to be a complete description of thesecurities, markets, or developments referred to in this material. The information has beenobtained from sources considered to be reliable, but we do not guarantee that the foregoingmaterial is accurate or complete. Any information is not a complete summary or statement of allavailable data necessary for making an investment decision and does not constitute arecommendation. Please note that international investing involves special risks, includingcurrency fluctuations, differing financial accounting standards, and possible political andeconomic volatility. Investing in emerging markets can be riskier that investing in well-established foreign markets. Dividends are not guaranteed and must be authorized by thecompany’s board of directors.* To unsubscribe from the Hyre and Associates Weekly Commentary please reply to this e-mailwith “Unsubscribe” in the subject line, or write us at 2074 Arlington Ave, Upper Arlington, OH43221.Phil ConstansWealth AdvisorRaymond James Financial Services, Inc.Member FINRA/SIPC2074 Arlington Ave.Upper Arlington, OH 43221614.225.9400614.225.9400 Fax877.228.9515 Toll Freewww.hyreandassociates.comRaymond James Financial Services does not accept orders and/or instructions regarding your account by email, voicemail, fax or any alternate method. Transactional details do not supersede normal trade confirmations or statements.Email sent through the Internet is not secure or confidential. Raymond James Financial Services reserves the right tomonitor all email. Any information provided in this email has been prepared from sources believed to be reliable, but isnot guaranteed by Raymond James Financial Services and is not a complete summary or statement of all available datanecessary for making an investment decision. Any information provided is for informational purposes only and does notconstitute a recommendation. Raymond James Financial Services and its employees may own options, rights or warrantsto purchase any of the securities mentioned in email. This email is intended only for the person or entity to which it is
  • addressed and may contain confidential and/or privileged material. Any review, transmission, dissemination or other useof, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient isprohibited. If you received this message in error, please contact the sender immediately and delete the material from yourcomputer.