Skip to main content

Posts

Sound Advice: January 22, 2022

The January Effect What Wall Streeters refer to as the January effect focuses on both likely market performance during the year’s starting weeks and how that may set the direction for the remainder of the year.   Several studies that have examined historical numbers suggest that January does indeed lead the way to what’s ahead.   That suggestion, however, is less than compelling. No doubt, there is a strong upward seasonal bias during the colder months.   A review of market returns over the last five decades clearly shows that the first and fourth calendar quarters of the year, on average, account for two-thirds of the recorded annual gains.   It does not, however, clearly demonstrate that any one month stands out. Those who follow the January Effect theory argue that the yearly opener favors small company stocks.   Although there is some evidence that may have been the case quite a while back, that’s no longer true. Others pay less attention to the differential between company
Recent posts

Sound Advice: January 12, 2022

Dow Jones Industrial Average: Up 62 times in 48 years From the low of 577.60 on December 6, 1974, the Dow Jones Industrial Average has advanced by more than 60 times.  Thanks to the OPEC oil embargo of that time (the first of two), a contraction of the U.S. GDP, and interest rates climbing into the teens, the leading market averages dropped more than 45% from January, 1973 to the closing weeks of 1974. Is the current situation similar? Hardly.   Oil supplies are plentiful.   Energy sources other than fossil fuels are becoming more important.   Economic activity, although still constrained by supply disruptions, is brisk and likely to accelerate.   Interest rates remain near historic lows and even with probable increases over the next few years they will stay below levels that had prevailed over many decades. Yes, stock valuations have been high, but in the absence of a trigger event that could derail the ongoing progress of the corporate community, the parade of negative though

Sound Advice: January 5, 2022

Where do we go from here?   When you consider the wide variety of factors that impact the economy and the investment markets, it would be unrealistic to be encouraged by prospects for the next few years.  Yet, although opportunities for continued progress may be more limited, there are always some worth considering. Let’s put this in perspective.  Following the 23 trading days of The Pandemic Plunge, which saw prices collapse by 34%, the Standard & Poor’s 500 Index then rebounded 113% by the most recent December 31st.  On that date, the forward price-earnings ratio of stocks in the index had risen to a lofty 21.2 compared with a 25-year average of 16.8.  (That ratio is calculated by dividing the latest level of the index (4,766) by the estimated earnings of the included companies for the next 12 months .)  By all measures, that’s a hefty valuation, one that’s even more so since it depends on estimates of what’s to come, which are anything but assured. Other measures confirm

Sound Advice: December 29, 2021

“Hope smiles from the threshold of the year to come, whispering, ‘It will be happier.’”                                                         ALFRED LORD TENNYSON           N. Russell Wayne, CFP ®
How’s The Market?  Which One? The first question is fairly common.   The second question is quite rare.   Why?   Because there are numerous stock market indexes and from the narrowest to the broadest there is a huge difference in the stocks included and their returns. The best-known index is the Dow Jones Industrial Average, which is composed of 30 of the largest U.S. companies.    The Dow, like most other indexes, is a biased reflection of market performance.   The obvious reason is that it is a small sample, albeit that of the largest companies.   Less obvious, but more important, is that the index movements are primarily driven by the higher priced stocks in the group. Professional investors pay more attention to the Standard & Poor’s 500 Index, the movements of which often vary substantially from those of the Dow.   The S&P is weighted by the market value of the companies’ shares, which means that the biggest companies in the group have the greatest impact.   In rec

Sound Advice: December 15, 2021

The U.S. Is Slipping Behind In its early years, the semiconductor industry did not have many customers.   Few businesses in the 1950s could make use of the expensive new devices that allowed computers to function.   But one organization could: the federal government. The first shipment from Fairchild Semiconductor – the company that helped create Silicon Valley – was for the computers inside the Air Force’s B-70 bomber.   The Minuteman missile soon needed semiconductors too, as did other Cold War weapons systems and NASA equipment. Only the federal government tends to have the huge resources to make these investments.   After it does, private companies then use the fruits of these investments to develop innovative and profitable products, spurring economic growth and tax revenues that comfortably cover the cost of the original research. The Defense Department built the original internet – and Google, Microsoft, Amazon, and others expanded it.   The National Institutes of Health funded

Sound Advice: December 8, 2021

Individual Retirement Accounts Years ago, the go-to choice for saving money for the future was savings accounts.   Back in what now seems like the stone age, you opened your account, got a passbook, and periodically deposited funds for the years ahead.   When you made your deposits, the teller would update the interest you earned and that was that.   The biggest problem was remembering where the passbook was.   Folks who were more adventuresome and risk-tolerant opened brokerage accounts so they could buy stocks and bonds, often on the recommendation of their stockbrokers.   Those were the days of high-cost investing, before mutual funds took center stage. In the mid-1970s, however, two major changes substantially improved the picture for individual investors.   One was the beginning of discounted commissions for buying and selling stocks.   The second was the debut of Individual Retirement Accounts (IRAs).   These accounts made it possible to invest for retirement and defer tax