Weekly Market Wrap: Stocks reversed course this week. After an early week sell-off on Euro worries markets rallied on news of help for Euro countries.
For The Week
The S&P 500 finished the week up 1.71% to close at 1,385.97.
Oil slipped 1.48% to $90.09.
Gold moved up 2.56% to $1,625.03.
The Dollar dropped 0.90% against other major world currencies to $82.71.
Year-To-Date for the major indexes:
- The S&P index +10.21%
- The Dow Jones Index +7.02%
- The NASDAQ Index +13.55%
- The Russell 2000 Small cap Index +7.43%
- EAFE International Index +0.97%
- 10 Year Treasury Yield at 1.56%
- 30 Year Treasury Yield at 2.64%
On Monday stocks dropped 12 points on moderate volume as Euro-zone worries continue on growing concerns over a bailout for Spain and a Greek default.
Tuesday stocks slumped another 12 points as stocks continued to slide on Euro worries and a regional manufacturing slowdown in the US.
Wednesday stocks slipped 1 point on moderate volume as new home sales missed and mortgage applications were slightly higher.
Thursday stocks surged 22 points on moderate volume as the European Central Bank President Drahgi claimed that the ECB will do “whatever it takes” to keep the Euro together. In the US jobless claims dropped more than expected, durable goods orders beat expectations, pending home sales and regional manufacturing missed.
Friday stocks rose another 26 points on moderate volume as other Euro-leaders backed ECB President Drahgi’s comments, US 2nd Quarter GDP was slightly higher than expectations at 1.5% and consumer sentiment increased.
Takeaways from this week:
- Europe was back in the headlines this week as the primary mover of markets. Early in the week it was doom and gloom as Spain’s bond yields rose to unsustainable levels and Greece indicated it may not be able to meet targets needed to keep current agreements. This all turned on a dime as the ECB president backed the Euro by promising to keep the union together. Europe will continue to drive the markets from time-to-time until progress is made which will take considerable time.
- Mostly better-than-expected news in the US this week. Jobless claims fell and durable goods orders beat expectations which helped the 2nd quarter GDP estimate to also beat expectations. The US economy has definitely slowed this spring but has not stalled.
- It is a very busy week ahead for economic data which should give us a good picture on where the US economy is headed.
Mortgage rates were mostly flat this week. The national averages as reported by Bloomberg indicate a 15-year rate of 3.60% and a 30-year rate of 2.99%. These rates are as of 07/27/2012 and may include points.
What to watch for on the economic calendar this week:
Monday –No Major Data
Tuesday –Personal Income and Outlays / Home Prices / Consumer Confidence / Employment Costs / Chicago PMI
Wednesday – ADP Employment Report / Auto Sales / ISM Manufacturing / FOMC Meeting
Thursday – Weekly Jobless Claims / Factory Orders
Friday – Employment Situation / ISM Non-Manufacturing
Ronald J. VanSurksum, CFP®
Advanced Asset Management, LLC
July 30, 2012
Historically, many retirees and pre-retirees have looked to their portfolios as a potential source of income. In the current environment, finding these sources is no easy task. Ten-year U.S. Treasury bonds yield only 2.2%, and dividend-paying stocks within the S&P 500 are yielding 2.5%.1
But there are opportunities for higher yields that investors may want to consider. Higher yields can mean greater risk, so it is important to understand risk and potential return with any investment.
When looking for yields that currently exceed U.S. Treasury securities, you may want to review the following:
- As of September 30, 2011, corporate high-yield bonds, as measured by the Merrill Lynch High-Yield Master II Index, generated yields of 9.54%. Keep in mind that the yields of some corporate high-yield bonds compensate investors for default rates that historically have been higher than the broader fixed-income universe.2
- Higher-yielding sectors within the S&P 500 have included Telecommunication Services, which yielded 5.59% as of September 30, 2011, and Utilities, which yielded 4.27%.3 Standard & Poor's believes that expense control and broadband growth will support dividends for the Telecommunication Services sector. For Utilities, Standard & Poor's anticipates that higher revenue among electric utilities and expanding gross margins for gas utilities will cause the sector's dividend yield to be maintained.
- Emerging market sovereign debt, as measured by the Merrill Lynch Emerging Market Sovereign Bond BBB U.S. Dollar Index, yielded 4.65% as of September 30, 2011. Emerging market debt provides exposure to markets where economic growth currently exceeds the developed world while avoiding troubled European markets.4
Yield and Your Portfolio
The following tips may help you evaluate higher-yielding investments at a time when finding yield remains a challenge.
- Review an investment's exposure to risk as well as its potential return. High-yield bonds historically have experienced higher default rates than investment-quality issues. Keep in mind that bond prices decrease when interest rates rise, opening bondholders to downside risk if inflation increases and market interest rates rise from their current lows. Holding a bond to maturity eliminates this secondary market risk.
- Diversify sources of yield. Relying too much on one or two income-oriented securities can leave you exposed to unanticipated changes in the financial markets.
- Consider your asset allocation. Since yield is available from both stocks and bonds, you may be able to create a high-yielding portfolio within the framework of your desired asset allocation. Within a stock allocation, equities within the S&P 500 Dividend Aristocrats have increased dividends every year for at least 25 years. Municipal bonds may present tax benefits for fixed-income investors.5
The variety of yield sources available presents opportunities to craft an income-generating portfolio suitable for many different risk profiles and time horizons.
1Yields are as of September 30, 2011. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, they offer a fixed rate of return and fixed principal value.
2Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. They may not be suitable for all investors.
3Investments in specialized industry sectors have additional risks, which are outlined in the prospectus.
4Emerging markets are generally more volatile than the markets of more-developed foreign nations, and therefore you should consider this increased market risk carefully before investing. Investors in international securities may be subject to higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities.
5Municipal bonds are federally tax free, but other state and local taxes may apply.
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