Following is a great market commentary on the most recent changes as originally distributed by Bruce Worthington with New England Investment and Retirement.
The tug of war in the stock market ended in just about a draw last week as the Standard & Poor’s 500 index rose a fraction.
Since the beginning of the year, the S&P 500 index has traded in a range roughly between 1,215 and 1,450, according to data from Yahoo! Finance.
However, when you consider the weakness this year in the financial and homebuilding sectors, the rise in oil prices, and the inflation spurt, we might view it as a positive accomplishment that the market is only down about 12% year-to-date as measured by the S&P 500 index.
When you dig deep into the market, there’s been significant turbulence in certain sectors (e.g., financials and homebuilders), but some of that weakness has been offset by strength in the transportation and commodities sectors, according to Morningstar.
Of late, a stronger dollar and declining oil prices have helped breathe life into the markets.
As of last Friday, the dollar had appreciated for 11 straight days against the euro, according to Barron’s.
While you never know for sure what causes a run like that, some of the “experts” suggest it’s due to weakening international economies. So, while the U.S. economy may be weak, other countries are starting to slow and that may make the U.S. look a little better on a relative basis.
August is frequently a peak time for Wall Street titans to retreat to the Hamptons and other upscale locales to soak up some sun and relax. As a result, stock market volume has been relatively light this month, so it’s hard to draw any conclusions from the recent market action.
As we head into the fall and get another round of quarterly earnings, that may change. Stay tuned…
Developed from 90 institutions representing a variety of dealer and investor opinions, Municipal Market Advisors’ Consensus represents a “mid-market” yield (a “mid market” yield represents the mid-point between the “bid” and “offered” side of the market). Levels are based on a “Natural ‘AAA’ general obligation credit” (i.e., not pre-refunded or insured) with Maryland general obligation used as a guide.
According to Municipal Market Advisors, over the course of the year, top-rated 10-year munis have yielded an average of 99% of Treasuries with the same maturities. Historically, because of their tax benefits, munis typically yield roughly 87% of Treasuries.
The story behind the unprecedented ratios between muni and Treasury yields begins with Treasuries. Simply, the continued belief that our nation’s economic growth problems are significant is helping keep U.S. Treasury rates low.
Tom Doe, CEO and founder of Municipal Market Advisors, says a plot of Treasury yields since 1979 shows a wide range where the actual yield for the 30-year fluctuates from the high end to low end and falls back to mean.
However, since 2000, it’s been consistently at the bottom of that range due to worries over economic growth.
What’s more, the muni market has been rattled by the deterioration of bond insurance. That is, as numerous bond insurance companies that had excessive subprime mortgage exposure have been placed on watch lists or failed, there’s currently little way of bolstering a municipal’s credit rating to AAA status.
So, with bond insurance unavailable or worthless, muni bond yields are rising to levels that reflect their potentially lower underlying credit rating. What was once a AAA, and priced that way by the marketplace, now might be evaluated as an A credit with a higher yield.
Municipal yields also have experienced pressure from the selling of leveraged municipal cash positions by both dealer banks and other sophisticated investors. And, with the market flooded, jittery investors are more likely to trade the bonds according to their uncertain underlying credit ratings.
All in all, today there are plenty of variables to monitor in a muni market that historically has been described as plain vanilla, or even boring.
Weekly Focus – Mind Reading?
The U.S. Army awarded scientists a $4 million grant to study brain signals in an attempt to “decipher what a person is thinking and to whom the person wants to direct the message,” according to an August 15 Associated Press story.
Using brain wave-reading technology known as electroencephalography, or EEG, scientists had volunteers wear an electrode cap and then they asked the volunteers to think of a word chosen by the scientists.
The scientists then analyzed the brain activity. In what may be a scary thought (pun intended), the scientists “hope to develop thought-recognition software that would allow a computer to speak or type out a person's thought,” according to the article. And, now you know where our tax dollars go.
Best regards,
Bruce C. Worthington
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.
Securities offered through Commonwealth Financial Network, Member FINRA/SIPC. * 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 Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
*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.
* Consult your financial professional before making any investment decision.
* You cannot invest directly in an index.
* Past performance does not guarantee future results.
The tug of war in the stock market ended in just about a draw last week as the Standard & Poor’s 500 index rose a fraction.
Since the beginning of the year, the S&P 500 index has traded in a range roughly between 1,215 and 1,450, according to data from Yahoo! Finance.
However, when you consider the weakness this year in the financial and homebuilding sectors, the rise in oil prices, and the inflation spurt, we might view it as a positive accomplishment that the market is only down about 12% year-to-date as measured by the S&P 500 index.
When you dig deep into the market, there’s been significant turbulence in certain sectors (e.g., financials and homebuilders), but some of that weakness has been offset by strength in the transportation and commodities sectors, according to Morningstar.
Of late, a stronger dollar and declining oil prices have helped breathe life into the markets.
As of last Friday, the dollar had appreciated for 11 straight days against the euro, according to Barron’s.
While you never know for sure what causes a run like that, some of the “experts” suggest it’s due to weakening international economies. So, while the U.S. economy may be weak, other countries are starting to slow and that may make the U.S. look a little better on a relative basis.
August is frequently a peak time for Wall Street titans to retreat to the Hamptons and other upscale locales to soak up some sun and relax. As a result, stock market volume has been relatively light this month, so it’s hard to draw any conclusions from the recent market action.
As we head into the fall and get another round of quarterly earnings, that may change. Stay tuned…
Returns through 8/15/08 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
Dow Jones Industrials |
-0.6 |
-12.1 |
-10.9 |
3.1 |
4.6 |
3.1 |
NASDAQ Composite |
1.6 |
-7.5 |
-2.1 |
4.2 |
7.6 |
3.0 |
Standard & Poor's 500 |
0.2 |
-11.6 |
-10.2 |
1.7 |
5.6 |
1.8 |
Sources: Yahoo! Finance, Barron’s. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three-, Five-, and 10-year returns are annualized. Assumes dividends are not reinvested.
MUNICIPAL BONDS ARE MATCHING UP WELL against Treasury bonds.
It’s not often you use the words “interesting” and “surprising” to describe the municipal bond market, but with values relative to other asset classes at or near historic levels, munis are generating plenty of interest.
Of course, municipal bonds’ tax advantages have always made them attractive. Interest income is exempt from federal tax, and, potentially, even state and local tax. The current bonus is that across the maturity spectrum, municipal bond yields are matching, and sometimes surpassing, the yields on comparable taxable Treasury securities.
In fact, as of last week, the Concord, Massachusetts-based Municipal Market Advisors’ Municipal Consensus Yield Curve, the only municipal benchmark created directly by leading institutions of the municipal market, compares munis and Treasuries this way:
Maturity |
Muni 'Aaa' |
% of Trsy |
|
1-yr: |
2.11% |
2.20% |
96% |
2-yr: |
2.43% |
2.57% |
95% |
5-yr: |
3.13% |
3.28% |
95% |
10-yr: |
3.85% |
4.01% |
96% |
30-yr: |
4.95% |
4.62% |
107% |
Developed from 90 institutions representing a variety of dealer and investor opinions, Municipal Market Advisors’ Consensus represents a “mid-market” yield (a “mid market” yield represents the mid-point between the “bid” and “offered” side of the market). Levels are based on a “Natural ‘AAA’ general obligation credit” (i.e., not pre-refunded or insured) with Maryland general obligation used as a guide.
According to Municipal Market Advisors, over the course of the year, top-rated 10-year munis have yielded an average of 99% of Treasuries with the same maturities. Historically, because of their tax benefits, munis typically yield roughly 87% of Treasuries.
The story behind the unprecedented ratios between muni and Treasury yields begins with Treasuries. Simply, the continued belief that our nation’s economic growth problems are significant is helping keep U.S. Treasury rates low.
Tom Doe, CEO and founder of Municipal Market Advisors, says a plot of Treasury yields since 1979 shows a wide range where the actual yield for the 30-year fluctuates from the high end to low end and falls back to mean.
However, since 2000, it’s been consistently at the bottom of that range due to worries over economic growth.
What’s more, the muni market has been rattled by the deterioration of bond insurance. That is, as numerous bond insurance companies that had excessive subprime mortgage exposure have been placed on watch lists or failed, there’s currently little way of bolstering a municipal’s credit rating to AAA status.
So, with bond insurance unavailable or worthless, muni bond yields are rising to levels that reflect their potentially lower underlying credit rating. What was once a AAA, and priced that way by the marketplace, now might be evaluated as an A credit with a higher yield.
Municipal yields also have experienced pressure from the selling of leveraged municipal cash positions by both dealer banks and other sophisticated investors. And, with the market flooded, jittery investors are more likely to trade the bonds according to their uncertain underlying credit ratings.
All in all, today there are plenty of variables to monitor in a muni market that historically has been described as plain vanilla, or even boring.
Weekly Focus – Mind Reading?
The U.S. Army awarded scientists a $4 million grant to study brain signals in an attempt to “decipher what a person is thinking and to whom the person wants to direct the message,” according to an August 15 Associated Press story.
Using brain wave-reading technology known as electroencephalography, or EEG, scientists had volunteers wear an electrode cap and then they asked the volunteers to think of a word chosen by the scientists.
The scientists then analyzed the brain activity. In what may be a scary thought (pun intended), the scientists “hope to develop thought-recognition software that would allow a computer to speak or type out a person's thought,” according to the article. And, now you know where our tax dollars go.
Best regards,
Bruce C. Worthington
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.
Securities offered through Commonwealth Financial Network, Member FINRA/SIPC. * 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 Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
*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.
* Consult your financial professional before making any investment decision.
* You cannot invest directly in an index.
* Past performance does not guarantee future results.
