The Markets

It’s about time.

Believe it or not, the U.S. stock market as measured by the S&P 500 index hit an all-time record high last week when you include reinvested dividends, according to Bloomberg. Now, you may not have seen that headline in the news last week because the index itself is still 9.3 percent below its all-time high reached on October 9, 2007.

Here are a few other interesting stats to ponder:

1)    In 2012 alone, the rise in the U.S. stock market added $1.9 trillion to investors’ wealth.

2)    As of last week, the S&P 500 index rose 112 percent from its 12-year low reached in March 2009.

3)    Even though economic growth is sluggish, U.S. corporate earnings are projected to reach a record high this year. If reached, this would place earnings about 20 percent higher than 2007’s – the year the U.S. stock market hit its all-time high.

4)    By historical standards, “The S&P 500 is trading 13 percent below its average valuation since the 1950s.”

5)    World central banks expanded their balance sheets by about 9 trillion dollars since the financial crisis started.

Sources: Bloomberg; Barron’s

Number 5 above is an important point to keep in mind. Easy money has greased the world economy and now there’s talk of even more monetary stimulus in Europe and the U.S., according to MarketWatch. What remains unanswered is, how much of the market’s rise has been stimulated by the stimulus and what happens when the stimulus is no longer available or effective? Can the economy stand on its own?

Barron’s framed it this way, “At some level, the market gets priced not simply for the monetary-easing cure to remedy economic ills, but for that drug being administered to a healthy patient for recreational purposes.” Translation – if central banks overshoot and markets get addicted to the easy money high, the inevitable withdrawal of the money drug may be painful.

Data as of 9/7/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

2.2%

14.3%

20.0%

11.9%

-0.2%

4.8%

DJ Global ex US (Foreign Stocks)

2.7

6.9

1.0

2.0

-5.3

6.7

10-year Treasury Note (Yield Only)

1.7

N/A

2.0

3.5

4.4

4.1

Gold (per ounce)

4.8

9.8

-4.5

20.3

19.8

18.3

DJ-UBS Commodity Index

0.8

4.7

-9.3

5.5

-2.5

3.3

DJ Equity All REIT TR Index

1.6

19.3

23.1

25.9

4.3

11.4

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.

 

Best regards,

Jonathan K. DeYoe

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with the named broker/dealer. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance 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 Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory 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 two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice 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.

Sources:

http://www.bloomberg.com/news/2012-09-07/s-p-500-within-10-of-record-as-birinyi-sees-bears-capitulating.html

http://online.barrons.com/article/SB50001424053111904294104577631463408430328.html?mod=BOL_twm_col

http://www.marketwatch.com/story/for-us-stocks-europe-and-fed-in-drivers-seat-2012-09-08

http://www.economist.com/blogs/freeexchange/2012/09/americas-jobs-report

http://www.theatlantic.com/business/archive/2012/04/heres-why-you-shouldnt-freak-out-about-the-shrinking-workforce/255541/

http://blogs.wsj.com/economics/2012/09/08/number-of-the-week-young-people-lead-labor-force-drop-outs/

http://research.stlouisfed.org/fred2/series/NILFWJN

http://www.notable-quotes.com/w/work_quotes.html

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