Weekly Stock Recap

Market Beating Foresight: Summer Swoon Stokes Anxiety

The market lost ground for the fourth straight week as the summer swoon stoked more anxiety amongst investors. The market has been in the doldrums as concerns rise over the progress and outlook for an economic recovery. There was not a lot of economic news or quarterly earnings reports last week, but what was shared was not good. Oil led the market lower as concerns over declining oil demand from a faltering economy drove prices sharply down. The most recent ISM Services report showed economic contraction and jobless claims continue to rise. On a positive note, U.S. Treasury yields dropped significantly as investor demand drove prices higher which lowered yields. Smaller yields are good for Mortgage Rates as they trend closely the yield direction on longer term treasuries. To us, the market decline over the past four weeks is not all that surprising. We view recent performance as a correction and consolidation from the big run-up that started in March. The market had simply moved too far too fast and needed to catch its breath. Hopefully, four weeks of decline is all that is needed! The calendar next week will bring a heavy dose of economic data on inflation, production, retail sales, housing and jobless claims. In addition, reporting for second quarter earnings will be in full swing and will continue over the next few weeks. We believe the developments over the next few weeks have the potential to swing the market in a major way. Those developments could have a significant impact on the trend and direction that the stock market takes for the remainder of the year. We still view the stock market as reasonably priced, but caution that trading could become very volatile over the next few weeks. At the annual halfway point, the broad market is now down -2.7%. We still expect the market to finish with a positive annual return, that is as long as we avoid another market meltdown. We do have concerns that the market could test the lows hit earlier this year, but do not think that scenario is likely. We plan to stay fully invested in our stock portfolios and also plan to increase investment allocations in our options portfolio. The recent downturn in the oil industry has really pressured the stocks that we own related to that industry. We plan to carefully review these holdings over the near term and will make investment decisions based on future outlooks and price momentum.

Weekly Stock Market Recap

Market Beating Foresight: Rocky Week Dampens Enthusiasm

The market started last week sharply lower, then recovered in the middle of the week only to drop 3% on Thursday. It was certainly an up and down week as investors searched for market direction and a near term trend. The weekly news was more negative than positive and the lighter trading volumes due to the holiday week combined to make for a rocky trading. The biggest news was jobs data and consumer confidence, both of which came in with a negative bias. Job losses continue to mount and results have been worse than expected. But frankly this remains no big surprise to us as we expect job losses and unemployment to rise through the rest of this year. Even if we hit an economic bottom in the fourth quarter, it will take time before businesses to show an interest and willingness to expand payrolls. Unemployment may not improve until well into 2010! Investors were also startled at greater than expected declines in June consumer confidence. Consumers will likely continue to hoard cash and reduce spending which will restrict growth in demand for goods and services. Furthermore, oil prices fell over 4% last week in large part due to falling expectations of global demand due to weakening economic conditions. That negative bias, along with lower trading volumes, made for a rocky week of trading. In the end the bears won and the market ended with another weekly loss. As we have said before the economy is not good, and its recovery will likely be slow and weak. Quarter two earnings releases will begin in full force through the month of July and that will have the potential to move the market in a big way. We plan to closely monitor those earnings releases over the coming month. The market could be in for a major bump if companies fail to meet earnings expectations or if their future outlooks deteriorate. However, we still view the stock market as reasonably priced at the 900 level (S&P) and we plan to buy stocks and options long when we can at those levels. Volatility has been trending down, but could spike once again if investors get spooked with earnings news. At the 2009 halfway point, we are fully invested in our stock portfolios, but do plan to increase investment allocations in our options portfolio. In addition, over the near term we plan to prune laggards from our stock portfolios and replace with stocks that show stronger investor demand. We fully expect our portfolios to outperform the market for the remainder of the year.

Remember, our complete list of stocks is Available Online At: http://www.marketbeatingstocks.com

Stock Market Recap

Market Beating Foresight – Profit Taking Rules

Profit taking on low trading volume was the theme last week. Investors were selling early in the week and cashing in on profits from the strong market run since March 9. The good news is that trading volumes were low which suggest that conviction on the sell side was lacking. Profit taking seemed to be the biggest driver as the overall market news and trading was relatively light. On the economic front, housing starts were better than expected, however that was offset by greater than expected declines in industrial production. The rate of economic decline has slowed considerably, but it has not yet reversed course. We think the market has fully baked into current stock prices the improving outlook. We also think the market is currently trading in a reasonable range given the current market and economic outlook. It will likely take more significant and upbeat news on the corporate and economic fronts before the market goes on its next big advance. That advance will happen and we plan to stay fully invested to make sure we do not miss out. However, we think that market prices could remain trade range bound over the near term, at least until those big market moving events unfold. We plan to increase our investment allocation in long term call options as we do think the market will continue the advance over the next six months. We will also begin pruning our stock portfolios for stocks that are currently lagging the market returns. Our goal is to pick winners – stocks that perform better than the market benchmark - in seven out of ten stocks we purchase. However, that also means that we expect to pick at least three losers. In other words, 30% of our stocks will fail to beat the market. That is why portfolio pruning is necessary, with the intent to replace laggards with better performing alternatives. Replacing laggards with better performing alternatives is one of the key principles in our portfolio management strategy and investment approach. This approach has been a big factor in our success and helps ensure that we remain unemotionally attached to any one stock. We would also add that as a goal, a 70% success ratio represents an extremely high bar. Most investors would be lucky to achieve a success ratio of 50% over the relatively short trading periods we follow. In fact, the data would suggest that the majority of investors fail to consistently beat the market and that includes professional money managers!

Weekly Stock Recap

Light Trading But Positive Week

Last week the S&P index ended 3.6% higher in light trading due to the holiday shortened week. The Year To date return for the broad market is now in positive territory at 1.8% after what was a pretty slow week in terms of news and corporate developments. One important news item was the consumer confidence reading which came in much better than expected. Those readings helped the market off to a good start for the week. But perspective and caution is important here relative to consumer confidence. We like the up tick in consumer confidence readings and the fact that results were better than expected, but readings remain at very low levels. We will breathe a sigh of relief once these readings show a sustained uptrend. On a different note, Long term bond yields fluctuated significantly last week which caused a market stumble when yields rose. Initial jobless claims slowed again last week which suggests the pace of layoffs is indeed slowing. However, continuing claims continue to grow which indicates that the economy is still not generating enough jobs to compensate for even a slowing pace of job loss. That is a trend we do not expect to see reversed any time soon. General Motors was the big corporate news as the company continues to teeter on bankruptcy. The market speculation is that the company will enter bankruptcy as early as next week.

Market Beating Foresight

Our optimism continues to grow as the market builds on recent gains. A 3.6% increase for the week is modest, but represents the kind of growth that is more sustainable over the long term. Volatility levels continue to moderate and that is a positive barometer that will help bringing investors back to the market. The economy remains very weak and we do not see a major reversal anytime soon. However we do think now is an excellent time for investors to increase stock allocations. Over the past few weeks, we have gone from a 70% cash position to begin nearly fully invested. We have been very aggressive increasing our stock allocations. We do think that the worst is over for the stock market, but caution that the market could still suffer significant bumps. Given a longer term view, this should be an excellent time for investors to enter the market. However, investors can reduce the risk of market timing on entry by spreading their new stock investments over a few months. The other important factor is to maintain portfolio diversification by investing in 10 stocks across a variety of industries. The stock market has already made a strong move since the March 9th lows. But we think the odds are good that the market will continue its uptrend amidst what will surely be bumps along the way. Last week was a short week with the holiday and trading volumes and net inflows were relatively light. But we expect the inflows into the market to grow significantly over the remainder of this year and that will likely support a rising market. Investors will not want to miss out on this potential rally. Obviously there is no guarantee, but we think the market upside potential outweighs the risk. We are 90% invested in our stock portfolios and plan to be fully invested very shortly. Our plan will be to stay fully invested over the near term as long as the market avoids another meltdown.

Weekly Stock Recap

Housing & Jobs Weigh on Market

Last week started off with a bang only to end with a whimper. However, the broad market did end the week with a slight 5% gain leaving a Year to Date loss of -1.8%. The start on Monday was strong and encouraging following the losses the prior week. Financials and investment firms led the way based on their improving outlooks. The bulk of first quarter earnings reports are nearly complete. Several key retailers announced particularly strong results that exceeded expectations, a sign that distressed consumer spending may be finally turning the corner. Frankly, spending has a long way to go before returning to levels seen from prior years, although the slowing decline we now see is encouraging. But the real story last week was the release of poor economic data on Housing and the Job market. Housing starts fell again to record lows on larger than expected declines. Jobless claims rose higher than expected with continuing claims once again setting new records. Frankly, these economic reports are not a surprise to us. The rate of deterioration in Housing and unemployment may be decreasing, but the bottoms remains elusive. In fact, we continue to believe that unemployment will not peak until later this year or even next year. For some reason, the market woke up and that realization weighed on efforts to push the market advance forward. It should be no surprise that the economy remains very weak and continues to decline across most measures.

Market Beating Foresight

We find the modest gain this week encouraging following the pullback from the prior week. The market had gotten a little ahead of itself, so we view the two week consolidation as a positive sign. Too much growth too fast just raises volatility levels. High volatility creates anxiety amongst investors and that usually slows the net inflow of funds into the market. Moderate and sustainable growth is what we like to see, and that helps investors maintain staying power for the long term. The economy remains very weak and in decline. However, first quarter earnings season was generally better than feared, and did not cause another market meltdown. We think now is an excellent time for investors to increase their stock allocations. The stock market will likely remain choppy, but we do not expect another meltdown barring an unforeseen world event. The market will certainly not be immune to bad news over the remainder of this year, such as bankruptcies that continue to mount. In fact, speculators are betting that General Motors will declare bankruptcy. It that does happen, we do not expect that announcement to cause another market meltdown. We think that investments made now and over the next few months will be very rewarding over the long haul. Investments made in the stock market today will look very good three to four years out. We also expect net cash inflows into the market to grow sharply over the remainder of this year. That will help drive a strong stock market recovery. Investors will not want to risk missing out on that recovery by sitting on the sidelines. In keeping with our plan, we are now moving aggressively to 100% equity investments in our stock portfolios now that the market has survived the first quarter earnings season. Generally speaking, we do not try to time the market as we like to stay fully invested in our stock portfolios except during times of unusual market volatility. The volatility we experienced in 2008 was truly unprecedented, and we expect the market to revert back to more normal volatility levels over time. That means we expect to carry higher stock allocations this year than what we carried last year. In addition, we are optimistic that the stock market will maintain a positive bias and uptrend for the remainder of this year.

Weekly Stocks Recap

Market Pulls Back!

Last week was tough for the stock market with the S&P 500 declining 5%, dropping the Year To Date return back in negative territory. The market pullback is not all that surprising after experiencing two months of unusually large gains. The reality is the market just got a little ahead of itself. As we have said before, we think it is healthy for the market to take a breather over the near term, 30% plus gains are just too much over a two month period in a declining economy. Yes, the economy is still in decline, although that rate of decline has slowed. Retail sales came in lower than expected last week, a big disappointment for the market. Consumer spending will likely continued to be challenged with unemployment fears and overriding concerns regarding economic health. Industrial production is still declining, although recent reports suggest the pace of that decline is slowing. Reports next week will provide more light on Housing, but a recovery in this sector just does not seem near. All in all, this is still a declining economy, although the positive is that the pace of that decline is slowing. That is good news, but we also suspect that economic recovery will be modest and slow when it does come. First quarter earnings season is almost over, and while most companies have treaded water, results show just how deep the economic impact has been.

Market Beating Foresight

We are not surprised nor particularly concerned with the market pullback last week. Frankly, the stock market had gotten a little ahead of itself. The financial sector led the decline, also not surprising given the remarkable gains from that sector over the prior two months. The economy is not in recovery mode, it is still in decline. Investors have been encouraged with the slowing rate of decline, but it is clear that the economy has not yet reversed course. We expect the stock market remain choppy and trading range bound over the next few weeks. However, we look at the recent pullback as a buying opportunity. For investors that have been sitting on the sidelines, now is an excellent time to increase stock allocations. As we mentioned last week, we too plan to increase our equity allocations now that the bulk of 1st quarter earnings have been released. We think that investments made now and over the next few months will be very rewarding over the long haul. We remain optimistic on the direction of the stock market, despite the market volatility last week. We expect incremental net inflows into the stock market to increase and that the rate of those increases likely will escalate over time. Net cash inflows into the market will drive the demand for stocks and their prices higher over the coming months. All in all, we remain optimistic, and expect an overall positive bias in the stock market trend over the remainder of this year. However, we also hope that we experience a more moderate and sustainable market growth than what we have had over the prior two months. Moderate growth will make it easier for participants to stay invested and will reduce market volatility. Confidence is critical towards turning around this economy and stock market. Reducing the fears that consumers and investors carry, will go a long way in restoring positive momentum in the economy and stock market.

Remember, you can access daily updates on Hot Stocks to Buy directly from our web site At: http://www.marketbeatingstocks.com

Weekly Stocks Recap

Amazing Two Month Turnaround!

Wow, another strong week with the broad market (S&P 500) advancing a whopping 5.9%! That brings the Year to Date performance on the index into positive territory, now at 2.9%. That is an amazing turnaround from the market lows hit on March 9. Over the past two months, the broad market index has risen an incredible 37%, for what is surely one of the best two month performances in stock market history. To many of us, it feels like the worst is over for the stock market, and recent money flows into the market would support that. Late March and April cash inflows were at their highest percentage levels since 2003, which coincided with the start of our last bull market. Net cash inflows are highly correlated with stock market performance, as inflows drive up demand for stocks and prices follow suit. For this recession, we do think that the March lows may turn out to be the stock market bottom. However, we also know that the market cannot sustain 30% plus gains every two months for the remainder of this year. Do not be surprised if there is a bit of a pullback or market consolidation over the next few months. In fact, it might be healthy to see the market take a breather over the near term. However, we suspect there is still a great deal of money on the sidelines that will eventually enter the stock market. Those inflows have the potential to drive the market significantly higher. Our only concern is that the stock market may be getting a little ahead of itself, as the economy is still in decline as we discuss below.

Rate of Decline is Slowing!

Has the recession hit bottom? The evidence suggests that the recession is still very much in force. Most economic measures are still declining, although the rate of that decline has indeed slowed significantly. That slowing rate of decline is what has most investors excited. For example, most manufacturing activity still shows contraction and the unemployment rate continues to rise, although jobless claims did come in lower than expected last week. Measures on GDP continue to show declines, although that rate (pace) of decline is slowing. Housing measures are still very poor and a bottom still appears elusive. However, it is fair to say that the economic news and forecasts today are less bad than they were a few months ago. Those are encouraging signs that we too think are positive. However, we do not think we will see the end of the recession until later this year. In fact, we think unemployment will continue to rise through the end of this year. Real economic growth and job creation may not reverse trend and start upward until 2010. However, the stock market is considered a leading indicator on economic measures, with past history suggesting it will lead the economy out of recession by 6 to 8 months. If March was the bottom that would suggest economic trends will turn positive by the end of the fourth quarter this year. While it will take time for the economy to reverse trend, the stock market has already begun its march upward. The other big news last week was the financial sector. The government released the bank stress tests, and results were better than the market expected. The financial sector exploded, rising more than 23% in one week alone! Also, the 1st quarter earnings season is now winding down. All in all, corporate earnings have come in mostly better than expected, although they are down from prior years. On the other hand, companies have not done as good a job meeting revenue expectations, which we view as a reflection of just how poor the economy really is.

Market Beating Foresight

We are encouraged with the momentum and strength the market has shown over the past two months. However, we are a little concerned that the market and certain sectors may be getting a little ahead of themselves. Yes, the worst is probably over, but the economy is still in decline. Businesses are not likely to start expanding again until next year. The financial sector is a good case in point of after having just risen 23% last week. Now may be a good time to take a little money off the table. If you have large gains in some financial stocks, you may want to sell part of your position. That is what we did when we sold our option position in Bank of America. In our view, financial stocks will likely continue to rise long term from the levels today and still represent an excellent buy. However, a prudent strategy would suggest cashing in on part of those recent gains. Remember, you can always reinvest the gains into another industry or even back into the financial sector after a pullback on longer consolidation period. We subscribe to the old Wall Street adage, “Little Piggies Get Fat, Hogs Get Slaughtered”, which in essence means do not get greedy on any one stock. Despite the big gains, we have no plans to short financial stocks or the market itself as the current momentum is very strong. For those of you that have been sitting on the sidelines, now is an excellent time to increase stock allocations. We would suggest gradually increasing your stock allocation over the coming months rather that jumping in all at one time which will reduce your timing risk over market entry. We too plan to increase our equity allocations now that the bulk of 1st quarter earnings have been released. We remain optimistic on the direction of the stock market, but do have reservations with the pace of recent gains. Volatility could return if the market gets too overextended from what economic conditions warrant. But the real market power lies with the net inflows that drive the market over the next few months. We think there is significant pent up demand that is sitting on the sidelines. As consumer confidence and retail spending gain momentum, that could drive the market sharply higher over the remainder of this year as more investors join the party. All in all, we think the market upside potential is stronger relative to the downside risk. That should make investing at current levels very rewarding over the long haul.