4 Reasons to Like China

Thursday, July 12th, 2012

Last month, in my Investment Directions monthly commentary, I predicted that we’d see further stimulus from China this yearas officials try to keep Chinese growth at a respectable rate ahead of a fall 2012 leadership transition.

And as I suggested would happen, the Chinese central bank last week announced its second surprise rate cut within a month. The action from the central bank was an acknowledgement that the world’s second largest economy is slowing. In the first quarter, China’s growth decelerated to 8.1% year over year, the slowest pace since the summer of 2009 as a slowing United States and ongoing European sovereign debt crisis took a toll on Chinese exports.

Still, despite China’s economic slowdown, I continue to hold an overweight view of Chinese equities for the following four reasons:

1.)    Valuations: Chinese stocks are selling at a significant discount to both other Asian emerging market countries and to their own history, especially when you consider that Chinese inflation is decelerating. In addition, current discounted valuations appear to be already reflecting the risk of a hard landing, which I don’t believe is the most likely scenario for China.

2.)    Growth Expectations: While China is experiencing a slowdown, it’s important to put China’s growth in perspective. I expect second quarter Chinese growth to come in around 8%, a level consistent with a soft landing scenario, and not anywhere near the United States’ truly slow 2% growth. In addition, the preponderance of evidence – and the few bright spots among weak recent economic data — still suggest that China can engineer a soft landing and even if China ends up growing at 7% to 7.5% next quarter, Chinese equities still look cheap.

3.)    Economic Policy: That China lowered interest rates twice within a month suggests that Beijing is refocusing on, and is willing to go the distance to stabilize, growth. In fact, I continue to expect more stimulus from China as it tries to ensure a smooth upcoming leadership transfer and as cooling inflation in the country gives the government more room to focus on growth. In addition, the gradual liberalization of the financial industry is also a plus for long-term growth.

4.)    Relatively Low Risk: Based on my team’s analysis, China is not one of the 15 riskiest markets. In addition, China enjoys a relatively stable currency, which reduces the volatility of its USD returns.

To be sure, Chinese equities, along with other risky assets, are still vulnerable to the fortunes of the global economy, and an exogenous shock, such as a worsening eurozone crisis, could certainly knock China off of its trajectory. But in the absence of such an event, most evidence suggests that China can engineer a soft landing and its outlook seems more positive than investors may be discounting. I prefer to access Chinese equities through the iShares MSCI China Index Fund (NYSEARCA: MCHI) and the iShares MSCI China Small Cap Index Fund (NYSEARCA: ECNS).

Source: Bloomberg

Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog.  You can find more of his posts here.

In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country and investments in smaller companies may be subject to higher volatility.

Tags: Acknowledgement, Chinese Central Bank, Chinese Exports, Chinese Growth, Chinese Stocks, Debt Crisis, Economic Data, economic policy, Economic Slowdown, Emerging Market Countries, First Quarter, Growth Expectations, inflation, Investment Directions, Leadership Transition, Preponderance Of Evidence, Sovereign Debt, Stimulus, Surprise Rate, Valuations
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U.S. Rental Market Continues to Boom

Friday, July 6th, 2012

We’ve mentioned the past few years how one ‘high growth’ area in the economy is the renters market. [May 24, 2011: Troubled Home Market Creates Generation of Renters] [Apr 8, 2011:  Apartment Vacancies Drop to 3 Year Low, as Rents Rise]  With many former home “owners” (I use the term sparingly since many of the 2004-2007 ilk had 100-120%+ type loan to value!) locked out of the market, and many young people with not enough money in their pocket to create a down payment, renting has come back with much vigor.  Also keep in mind this recession caused a massive drag to household formation.  [Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces]  [Apr 9, 2010: 1.2 Million Households Lost in Great Recession - Through 2008]  One net positive in the next 4-8 quarters should be a “building boom” of sorts in apartments ….

This WSJ story takes a look at some recent data:

• Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade, according to a report to be released Thursday.
• Despite the sluggish economy, average rents increased in all 82 markets tracked by Reis Inc. a real estate data firm. Average rents are now at record levels in 74 of those markets and now top $1,000 a month on average in 27 of them, including Miami, Seattle, San Diego, Chicago and Baltimore.  ”The market is in a very tight position,” Reis said in a research report. “There is a paucity of available units.”
• The nation’s vacancy rate fell during the quarter to 4.7%, its lowest level since the end of 2001, Reis said. That’s down from 4.9% in the first quarter of this year and from 8% in 2009, when millions of would-be renters were doubling up or living with family.  [Sep 16, 2011: 7.5M More Americans Living in "Double Up" Situations versus 2007]
• With the economy slowly recovering, more people are looking for their own places. But many are opting to rent rather than buy due to tighter lending standards—including higher down payments—and because of concerns about job security.
• Reis said that this is only the third quarter in over three decades that the vacancy rate has been below 5%.
• Values of apartment buildings are soaring, contrasting sharply with the single-family housing market. In some cities, investors are now surpassing peak prices for rental property buildings. Analysts point out that the apartment sector may lose steam if the economy weakens further and tenants begin doubling up again or put up more resistance to rent hikes.
• Demand for rental apartments also may fall if some builders succeed with appeals to move renters into the market for single family homes. Another risk: construction. Developers are racing to deliver new apartment supply, particularly in hot markets including Washington, D.C, and Seattle. Zelman & Associates expects 235,000 units to be started this year, followed by 285,000 in 2013and 320,000 in 2014.

Tags: Apartment Rents, Apartment Vacancies, Divorces, Enough Money, First Quarter, Home Buying, Household Formation, Households, Ilk, Landlords, May 24, Paucity, Recession, Reis Inc, Second Quarter, Sluggish Economy, Vacancy Rate, Vacancy Rates, Vigor, Wsj
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Emerging Markets Radar (June 11, 2012)

Sunday, June 10th, 2012

Emerging Markets Radar (June 11, 2012)

Strengths

• The People’s Bank of China (PBOC) has cut interest rates. Lending rates were cut by 25 basis points for all maturities. Deposit rates were cut by between 10 and 40 basis points. The move makes the one-year reference lending rate 6.31 percent and the one-year reference deposit rate 3.25 percent. However, banks have also been given increased flexibility to pay deposit rates up to 10 percent above the reference (previously the reference rate was a ceiling) and make loans at rates up to 20 percent below the reference (previously the floor was 10 percent below).
• Chinese banks lent almost 800 billion Yuan in May, Economic Information Daily reports.
• China HSBC Services PMI was 54.7 versus 54.1 in the prior month, indicating retail and services still in an expanding stage.
• The Philippine economy expanded by 6.4 percent year-over-year in the first quarter of 2012, beating expectations with strong services growth of 8.5 percent amid an improving domestic outlook.

Weaknesses

• While the market praised the progress the PBOC has made in liberalizing interest rates by widening the band where the banks can deviate lending and deposit rates from the reference rates, it almost unanimously agreed this squeezes the banks’ profit margin. In fact, there are a couple of reasons that the margin pressure will be much smaller than the market would believe. Those money center banks have a dominant franchise in China and so they can resist reducing lending rates and increasing deposit rates. For depositors, safety is more important than earnings from the deposits. Besides, bank customers place more than 50 percent of their money in demand deposits with large banks, which pay very little interest and provide banks with cheap money.
• Malaysia’s exports unexpectedly fell in April for a second straight month, dropping 0.1 percent as shipments of electronics and palm oil dropped.
• Lackluster external demand is weighing on the Israeli economy, and weak data have led the broad market index (BMI) to revise down the 2012 real GDP growth forecast from 3.2 percent to 2.9 percent.

Opportunities

• India’s external weaknesses are starting to correct. The country’s trade shortfall came in at $13.5 billion in April, down from $15.2 billion in February and $19.6 billion in October 2011. Lower global commodity prices and the weaker currency are likely to lead to a further narrowing of the trade deficit in the coming months.
• The Colombian peso has a potential to further strengthen in the short term, points out Business Monitor International as companies bring in U.S. dollars from abroad to pay annual taxes due on June 25.
• China cut benchmark lending and deposit rates by 25 basis points on Thursday. Historically, such a move will drive up liquidity and the stock market in Hong Kong and in the domestic B share market, as the chart shows.

Threats

• In spite of the interest rate cut on Thursday evening by the PBOC, both Hong Kong and China domestic A share markets went down on Friday. This indicates that the market is worried about the economic data to be released over the weekend. Also, the rate cut of 25 basis points is not to reverse the economic slow-down in China in the short term, but infrastructure investment and government fiscal spending will.
• The Russian central bank feels increasingly uncomfortable with the recent weakening of the ruble. The central bank has now started to intervene on the open market by selling its foreign currency reserves. So far, this intervention, which is partly responsible for a $10 billion decline in foreign reserves in May, had little success in reversing the decline in the ruble.

Tags: Bank Customers, Bank Of China, Basis Points, Cheap Money, China, Chinese Banks, Demand Deposits, Depositors, Economic Information, Emerging Markets, First Quarter, Hsbc, India, Margin Pressure, Maturities, Money Center Banks, Palm Oil, Pboc, Philippine Economy, Profit Margin, Services Pmi, Yuan
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China’s PMI, Hong Kong Retail Disappoint; Philippines, Russia, and Korea Lead in Improvement (June 4, 2012)

Monday, June 4th, 2012

Emerging Markets Radar (June 4, 2012)

Strengths

• The Philippine’s GDP increased 6.4 percent year-over-year in the first quarter this year, greater than estimated, and exceeded the previous quarter’s revised 4 percent. In Korea, industrial production rose 0.9 percent month-over-month in April, the biggest increase in three months, and it saw the Consumer Price Index (CPI) rise 2.5 percent in May, holding at a 21-month low.
• Thailand’s CPI for May rose 2.53 percent year-over-year, in line with expectations.
• Hunan Province in central China announced a provincial investment plan totaling RMB 4.2 trillion for 12th 5-years, or about Rmb 800 billion a year.
• China’s State Council has announced it will provide RMB 26.5 billion in subsidies to promote energy-efficient appliances, one of a series of stimulus measures that the market is expecting from the Chinese government.
• Turkey’s trade deficit was much better than expected in April, down to $6.6 billion from $9.1 a year ago.  Exports have been resilient in the first four months of 2012, rising by 10.9 percent over the same period a year ago. The eurozone is Turkey’s largest partner, and as a result of weaker demand in the region, exports to eurozone countries fell by 6.1 percent year-over-year in January through April. On the other hand, exports to North Africa rose by 63.3 percent (after falling by 23.9 percent in 2011), and exports to the Middle East increased by 35.5 percent.

Weaknesses

• China’s official PMI for May was 50.4 versus the estimate of 52; the reading was also the lowest in the year. The new order index dropped 470 basis points to 49.8 percent, which doesn’t bode well for productivity in the next few months if the downtrend is not stopped.  The HSBC final China flash PMI was 48.4 versus 49.3 in the previous month, a consecutive seventh month below 50. A PMI below 50 indicates industrial activities are contracting. HSBC China flash PMI tells more about export contraction at the moment.
• Hong Kong retail sales grew 11.4 percent in April versus estimate 16.4 percent, disappointing the market.
• Korean exports fell 0.4 percent year-over-year in May, exceeding estimates but still declining for a third month.
• The European Central Bank said that Hungary’s amended draft law still fails to address a number of previously highlighted concerns over central bank independence and executive powers of monetary council.

Opportunities

• The Russian manufacturing sector gained further growth momentum in May, with PMI remaining above 50.0 for the eight month running, rising to 53.2 in May.  Output and employment are higher, while inflationary pressures remain relatively weak.
• The Philippine’s GDP went up 6.4 percent in the first quarter, illustrating the fact that infrastructure investment and domestic demands are driving economic growth and corporate profits.

Threats

• With China PMI in May weakening and key sub-indices reflecting weak demand in the economy, this increases the probability of further policy relaxation and accelerated approval of infrastructure projects.
• Czech PMI fell to 47.6 from 49.7 in April, pointing to downside risk in coming quarters. HSBC survey data and anecdotal evidence suggested weak demand from both domestic and external markets, linked to the crisis in Western European economies.

Tags: Basis Points, Central China, Chinese Government, Consumer Price Index, Emerging Markets, Energy Efficient Appliances, Eurozone Countries, First Quarter, Four Months, GDP, Index Cpi, Investment Plan, Korea Industrial, North Africa, Pmi Hong Kong, Provincial Investment, Stimulus, Subsidies, Trade Deficit, Trillion
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Key ETF Performance QTD and YTD

Tuesday, May 15th, 2012

by Bespoke Investment Group

The second quarter of 2012 has so far been a complete reversal of the first quarter.  As of earlier this morning, just one stock-related ETF in our matrix below was up for the quarter — Utilities (XLU).  Major US index ETFs are all down 4-5% for the quarter, while sectors like Energy (XLE) and Financials (XLF) are down 7%+.

International markets have done much worse than the US.  Brazil (EWZ), France (EWQ), Germany (EWG), India (INP), Italy (EWI), Spain (EWP) and Russia (RSX) are all down double digit percentages since the start of April, and they’re down 5%+ over the last week alone.  The only asset class that is solidly in the green for the quarter is fixed income, which many investors shunned like the plague as recently as March.  Oh how quickly things change.

Tags: asset class, Brazil, Etf Performance, Ewg, Ewi, Ewp, Ewq, Ewz, First Quarter, Inp, International Markets, Investment Group, Percentages, Plague, Qtd, Rsx, Second Quarter, Sectors, Us Brazil, Xle, Xlf
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Sell in May and Go Away? Not this Year

Sunday, April 29th, 2012

Sell in May and Go Away? Not this Year

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

One catchy investing maxim that’s popular this time of year is “sell in May and go away,” the notion that investors should cash in their investments and take the summer off. Historically, this hasn’t been a bad strategy. You can see from this chart that June, July, August and September have been the worst four months of the year for the S&P 500 Index since 1988.

Since 2000, the June-September period for the S&P 500 is split. Half of the years saw positive returns, while the other half were negative. Historically, you have only about a fifty-fifty chance for a positive gain during those months while your odds are roughly 10 percent better during the rest of the year.

The trend is less consistent for emerging market stocks. You can see that the median monthly return for the MSCI Emerging Markets Index since 1988 is negative for June and August, but positive for July and September. The frequency of positive returns during the June-September period is roughly 6 percent lower than the rest of the year.

Last year, investors who employed the “sell in May” strategy averted an almost 17 percent drop in the S&P 500 and a nearly 25 percent drop in the MSCI Emerging Markets Index from June-September. Summer of 2010 was a similar experience.

With last year fresh on the minds of investors, should they take the summer off? We don’t think so.

We believe it’s a much better market this year. After following a similar trajectory as the previous year from October to the beginning of March, improving economic data pushed the S&P 500 over 3 percent higher in March 2012 after trending sideways during the same time period last year.

Nominal GDP in the U.S. grew 3.8 percent during the first quarter of 2012 versus 0.4 percent in 2011, and several areas of the economy are much stronger than they were a year ago. Nonfarm payrolls (up 29 percent), ISM Manufacturing (up 2 percent) and auto sales (up 8 percent) have all improved from a year ago, according to J.P. Morgan. In fact, auto sales are currently at a four-year high.

More importantly, the U.S. housing sector continues to improve. The ISI Group’s homebuilders survey is currently at 50.4, nearly 40 percent higher than a year ago.

Building permits are 35 percent higher and the number of housing starts is 3 percent higher than a year ago, according to Credit Suisse. Sales of existing homes are up 5 percent on a year-over-year basis. Credit Suisse says, “The supply of existing one-family homes has fallen from a peak of 11.5 months in July 2010 to 6.3 months in March (in line with the 20-year average).”

ISI Group says an improvement in housing is important because it lifts consumer net worth and employment, which leads to rising consumer confidence. Housing accounts for just over 2 percent of U.S. GDP, but roughly 27 percent of household wealth, according to Credit Suisse.

Earnings Season Off to a Record Start

The improving global economy is reflected in the thirteenth-straight quarter of better-than-expected corporate earnings. As of Thursday, 80 percent of S&P 500 companies have reported earnings above analyst estimates. Earnings for the 260 companies reporting so far were up 11.4 percent year-over-year and beat the consensus estimate by 6.3 percent.

This is good news for shareholders. According to a Bloomberg story this week, “companies are increasing shareholder returns in the form of dividends and buybacks after the 2008 financial crisis led them to hoard cash to a record $1 trillion by the end of 2011.” The number of S&P 500 companies paying out dividends now sits at 401, the largest number since January 2000. Corporations bought back roughly $543 billion worth of shares in 2011 and J.P. Morgan estimates companies will purchase another $679 billion worth in 2012.

U.S. companies aren’t the only ones reporting stronger results. This chart from Credit Suisse shows earnings momentum is strengthening around the world based on 12-month forward earnings per share estimates for the MSCI ACWI (All Company World Index). This is the opposite of what we experienced in 2011.

Buy in May?

May has historically been a strong one for markets. Since 1988, the median return for the S&P 500 and MSCI Emerging Markets during May has been 1.22 percent and 1.28 percent, respectively. In fact, May returns rank in the top half for both indices.

This is also a presidential election year in the U.S., which has historically produced positive returns. Since 1972, the stock market has rallied in 5 of the 8 election years, according to J.P. Morgan, with market gains of 12-26 percent. Only during recession years (2000 and 2008) did the S&P 500 provide negative returns.

Last week, Bank of America-Merrill Lynch suggested “investors position for an economic upturn” by increasing their exposure to equities. The firm’s Global Wave indicator, a compilation of seven global metrics designed to provide a comprehensive assessment of trends in global economic activity, was signaling a trough in the global cycle. According to BofA-ML’s research, the MSCI ACWI (All Country World Index) averages a 14.2 percent increase for the 12 months following a trough in the Global Wave. Historically, the index has experienced a positive return 86 percent of the time.

Instead of “selling in May and going away” for the summer in 2012, we think investors should look to global stock markets and ride the global wave.

Tags: Amp, August And September, Chief Investment Officer, Economic Data, Emerging Market Stocks, First Quarter, Four Months, Frank Holmes, GDP, Maxim, Months Of The Year, Msci Emerging Markets, Msci Emerging Markets Index, Nominal Gdp, Nonfarm Payrolls, Previous Year, Same Time Period, Time Of Year, Trajectory, U S Global Investors
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Apple’s Growth Scorecard for the first quarter of 2012

Wednesday, April 25th, 2012

For Apple 2012 started with almost the same growth as 2011 started. Q1 2011 saw earnings growth of 92% and Q1 2012 saw growth of 94%. As the following revenue growth table shows, the pattern for the last twelve months has been very consistent:

Here are some notes:

• The iPad is growing at a faster rate than the iPhone and has achieved in two years what the iPhone took four.
• The iPhone grew units at nearly 90% and revenues at 85%. This is slightly below the quarterly average over the last two years of 99%
• The Mac showed significant weakness though the previous year’s Q1 had exceptionally high growth of 32%. The Mac still grew faster than the market and therefore gained share
• The iPod is declining consistently. Units showed a lesser decline than revenues as the average price dropped from $164 to $157.
• The iTunes store continues to grow very rapidly, reaching a new record level above $2.1 billion revenues
• Peripherals were weak with 11% growth but that may have something to do with lowered Mac sales
• Software had good quarter though not exceptional
• The top line grew at nearly 60% which is not exceptional but the bottom line grew at 94% which is above average

Overall, the company had a very good quarter and showed consistency, which, incidentally, implies predictability. The following graph shows the top and bottom lines in historical context with color coding matching the table above.

Tags: Bottom Line, Bottom Lines, Color Coding, Consistency, Earnings Growth, First Quarter, Graph, Historical Context, Ipad, Iphone, Itunes, Mac Sales, Peripherals, Predictability, Previous Year, Q1, Sales Software, Scorecard, Twelve Months
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The Economy and Bond Market Radar (April 23, 2012)

Sunday, April 22nd, 2012

The Economy and Bond Market Radar (April 23, 2012)

Treasuries were more or less unchanged this week. U.S. economic data was broadly in line with estimates and Treasuries didn’t move around much this week. One interesting data point that was released this week was housing permits, which rose faster than expected to 747,000 (seasonally adjusted annualized rate). This can be easily seen in the chart below and has finally broken out of the range that it occupied for the past three years. This appears to be a very favorable development, as new housing activity looks as if it is finally picking up.

Strengths

• As mentioned above, housing is showing some signs of life and appears to be picking up.
• India’s central bank cut interest rates this week and China has indicated a willingness to ease monetary policy in the near future. The global easing cycle continues.
• Retail sales rose a very strong 0.8 percent in March, well ahead of expectations and with broad-based strength.

Weaknesses

• Spanish 10-year bond yields rose above 6 percent this week as the market rotates through southern Europe, with the current focus on Spain.

• Weekly initial jobless claims rose to 386,000 this week, continuing the recent trend of higher readings.

• The Bank of Canada has become more hawkish and indicated that rates may be headed higher on better-than-expected economic growth and higher inflation.

Opportunity

• After a disappointing first-quarter GDP result, the Chinese are likely to ease monetary policy as early as this quarter.

Threat

• Rising oil and gasoline prices combined with liquidity implications of global easing, led by Europe, may raise the prospect of a reappearance of higher inflation going forward.

Tags: Bank Of Canada, Bond Market, Bond Yields, Economic Data, Economic Growth, First Quarter, Gasoline Prices, GDP, inflation, Initial Jobless Claims, liquidity, Market Radar, Monetary Policy, Quarter Gdp, Retail Sales, S Central, Signs Of Life, Southern Europe, Treasuries, Willingness
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Q2 Markets: Don’t Expect Smooth Sailing

Wednesday, April 18th, 2012

by Russ Koesterich, iShares

After a disappointing, frustrating and, at times, terrifying 2011, patient investors were rewarded with a stellar start to 2012. In the first quarter, equity markets banked a performance that would have been respectable for the full year. Developed markets gained nearly 11%, while emerging markets advanced more than 13%. However, equity markets have lost some steam in recent days, and now many investors are wondering if there’s anything to look forward to in the second quarter.

The good news is that even after the rally, valuations still appear reasonable. Developed markets are currently trading at around 14x earnings, no longer a screaming bargain but below historic averages. Emerging markets, meanwhile, are even cheaper, trading at less than 12x trailing earnings. In addition, inflationary pressures remain well contained and while last Friday’s disappointing employment report reminded everyone that the recovery will continue to be slow and uneven, both the US and global economies are stabilizing.

That said, I don’t expect markets in the second quarter to be all smooth sailing. While markets can still move higher, gains are likely to be predicated on earnings growth, which in turn will depend on further improvement in the global economy. And even if the economy continues to stabilize, we’re unlikely to see another round of quantitative easing until at least July as the Fed’s Operation Twist is set to continue through June.

Without the sedative of easier monetary policy, markets are likely to be more volatile. I expect volatility to be in the high teens to low 20s, above the mid-teen levels that characterized the first quarter. In fact, it’s probably fair to say that the first quarter rally was more a function of continuing, and arguably intensifying, central bank generosity rather than a reflection of fundamentals experiencing a complete turnaround.

Given this environment, as the second quarter kicks off, investors should consider repositioning their portfolios to access international equity income, prepare for more volatility and shift into investment grade credit.

As I’ve mentioned before, in an environment of slow growth and more volatility, higher income stocks are more likely to outperform. However, such stocks currently look expensive in the United States, meaning investors may want to cast a wider net to get their dividend exposure through vehicles such as the iShares Dow Jones International Select Dividend Index Fund (NYSEARCA: IDV) and the iShares Emerging Markets Dividend Index Fund (NYSEARCA: DVYE).

In addition, as the market becomes more volatile, investors may want to consider equity funds that employ a minimum volatility methodology that can potentially help insulate portfolios from wild market swings. Such funds typically hold lower-beta stocks than similar, cap-weighted benchmarks and have historically produced higher risk-adjusted returns over the long-term.

Finally, as I wrote earlier this month, while high yield can still offer a good coupon, investment grade debt, accessible through the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEARCA: LQD), looks cheaper and should hold up better during a more volatile quarter.

Source: Bloomberg

The author is long LQD and IDV

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. There is no guarantee that dividends will be paid.

Minimum volatility funds may experience more than minimum volatility as there is no guarantee that the underlying index’s strategy of seeking to lower volatility will be successful.

Bonds and bond funds will decrease in value as interest rates rise.

Past performance does not guarantee future results.

Tags: Asset Allocation, Columbia Management, Credit Crisis, Diversification, Earnings Growth, Emerging Markets, Employment Report, Financial Situation, First Quarter, Generosity, Global Economies, Global Economy, Inflationary Pressures, Investment Advisers, Investment Mix, Iranian Hostage Crisis, Ishares, Last Friday, Market Crash Of 1987, Market Fluctuations, Monetary Policy, Ned Davis Research, Patient Investors, Portfolio Holdings, Q2, Quarter Rally, Rebalancing, Reflection, Risk And Reward, Risk Tolerance, Russ, Second Quarter, Sedative, Smooth Sailing, Stock Market Crash, Stock Market Crash Of 1987, Substantial Market, Time Horizon, Turnaround, Valuations, Volatility, Weather Market
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U.S. Equity Market Radar (April 16, 2012)

Sunday, April 15th, 2012

U.S. Equity Market Radar (April 16, 2012)

The S&P 500 Index fell 1.99 percent this week, the biggest weekly drop this year as concerns mounted over a global economic slowdown and financial imbalances in southern Europe.

Strengths

• Supervalu was the best performer within the S&P 500, rising 25 percent. The company reported earnings that are more or less even with expectations, but the stock appears to have benefited from a significant short squeeze.
• Consumer discretion was the best performing sector, as the homebuilders bounced back from last week’s weakness to be the top industry group this week.
• Other strong performers for the week include Hewlett-Packard, Starbucks and Safeway.

Weaknesses

• The financial sector was the worst performer this week as European concerns resurfaced and initial earnings reports within the sector met expectations.
• The energy sector was also weak on concerns of global economic weakness.
• F5 Networks was the worst performer this week, falling by more than 10 percent as a sell side-analyst raised concerns that the company may have had to push really hard to close deals at the end of the quarter, potentially increasing the odds of an earnings miss.

Opportunity

• The market didn’t respond positively to early earnings reports and suffered its worst week of the year. This may set a precedent for next week as earnings releases are set to pick up.

Threat

• The S&P 500 is arguably still overbought in the short term and could be vulnerable to profit taking after the rally in the first quarter.

Tags: Amp, Discretion, Earnings Releases, Earnings Reports, Economic Weakness, energy sector, European Concerns, Financial Sector, First Quarter, Global Economic Slowdown, Hewlett Packard, Homebuilders, Industry Group, Market Radar, Miss Opportunity, Safeway, Short squeeze, Southern Europe, Starbucks, Supervalu
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