Republicans will descend on Tampa this week to debate the gold standard, fiscal policy and health care reform. And if history is any guide, they might also boost the stock market—at least temporarily.
In the 16 presidential election years since 1948, the S&P 500-stock index has risen during 11 Republican conventions, as measured from the start to the end of the convention, according to a report by S&P Capital IQ. In contrast, stocks notched gains during only seven Democratic conventions.
When the Federal Reserve hinted Wednesday more stimulus could be on the way, the dollar sunk. While it remains unclear how or when the Fed might act, investing pros say it may still make sense to dial back on the greenback.
Minutes released from the Fed’s latest meeting noted that more officials feel monetary action would be needed “fairly soon” without signs of “a substantial and sustainable strengthening in the pace of the economic recovery.” Fed officials discussed launching another bond-buying program, extending their guidance on how long interest rates could stay near zero, and lowering the rate the Fed pays banks for reserves, according to the minutes.
With Warren Buffett apparently cooling on municipal bonds, mere mortal investors are wondering if they should do the same.
Investing pros – muni fans included – agree the credit risks in the market are rising. But Buffett’s recent decision to back off a long-term wager on bonds has some fearing more defaults could be imminent. A Fitch Ratings report released Monday says municipal bond downgrades should continue to outpace upgrades for the next year or two. And more municipalities are facing “superdowngrades”– getting their credit ratings lowered by three or more notches. Certain states, such as California, where legislators are limited in how much they can raise property taxes, could be harder hit than others, according to the report. And with revenue from sale and property taxes shrinking, some local governments are struggling to make good on their debts, says Jessalynn Moro, head of the U.S. local government group for Fitch Ratings. “There’s definitely greater stress than there has been in the past,” says Moro. And the problem is most “acute in those areas where budget flexibility is limited,” she says.
For all the worries about a possible collapse of the euro and impending fiscal cliff at home, regular investors aren’t exactly stuffing cash under their mattresses.
In contrast to last summer, when investors yanked money from mutual funds and even money market funds and threw it into checking accounts, people are staying invested this year. Investors put nearly $23 billion into open-end mutual funds from July 1 through August 15. In July and August of last year, by contrast, investors pulled $63 billion from all mutual funds, according to fund research firm Lipper. “The average retail investor does not want to be caught flat-footed again,” says Tom Roseen, a senior analyst at Lipper. “They’re selectively putting money back to work.”
Tech investing used to be synonymous with initial public offerings. But these days many pros say investors would do better to stick with Silicon Valley’s version of blue chips.
On Monday all eyes were on deal site Groupon (GRPN), which reported a modest second-quarter profit. While Groupon has won fans from consumers and merchants and enjoyed a high profile IPO late last year, disappointing growth and confusing accounting disillusioned some investors. The stock lost two-thirds of its value since debuting in November. But it’s hardly the only recent IPO to have tanked. Facebook (FB) and music site Pandora (P) have both fallen by roughly half. Video-game maker Zynga (ZNGA) is down more than 70%.
U.S. corporate earnings are up about 8% during the second-quarter reporting season. But don’t worry: Wall Street analysts predict the growth rate will quicken again soon, reaching a handsome 13% next year.
On second thought, worry. A turnaround like that would require, if not quite a biblical miracle, at least an economic one.
Quick, name the two best-performing asset classes over the past five years. Gold, you say? That’s right. Most investors are aware of the shiny metal’s ascent. But the other might come as more of a surprise. Here’s a hint: it’s getting to be as high as an elephant’s eye this time of year. Yes: corn and gold are tied for first as the top-performing global asset classes of the past five years, with returns of 144% each, according to a Deutsche Bank report out Thursday. So what’s going on with these strange bedfellows, and is it too late for investors to get in on the action?
The price of corn’s meteoric rise comes down to simple supply and demand. The nation’s farm belt is suffering from a major drought. And while the dry conditions are most acute this year, it’s actually the third year of weather-related crop woes for the United States, an “unprecedented” stretch in modern times, said Sal Gilbertie, president of Teucrium Trading, sponsor of a corn exchange-traded fund (ticker: CORN).
While stocks have been on a tear over the past few weeks, many retail investors find themselves in a familiar position: on the sidelines.
The Standard & Poor’s 500-stock index was up again this week after hitting a three-month high of 1390 on Friday and notching its fourth straight week of gains. Over that period, the index rose nearly 3%. But many retail investors missed out on the rally, yanking $9 billion from equity mutual funds in July, according to the most recent available data from Lipper, a research firm. Even with stocks reaching new milestones, “mutual-fund investors couldn’t get themselves to pile more money into their accounts,” says Jeff Tjornehoj, a senior analyst at Lipper. Separate data suggests retail investors are bailing from equities just as pros are rushing in. Exchange-traded funds that track stocks took in $13 billion in July, and $41 billion this year. Analysts use such inflows as a gauge of institutional activity, because ETFs are still viewed largely as a tool used by financial advisers, traders and other professional money managers.
The Fed’s announcement this afternoon offered investors more “wait and see” than “shock and awe.” But even though the Federal Open Market Committee (FOMC) didn’t move to stimulate the economy, its statement hinted strongly that future action would be likely if economic conditions warrant, saying that the Fed would “provide additional accommodation as needed to promote a stronger economic recovery.”
While all eyes turn now to the next FOMC meeting on September 12 and 13, financial advisers generally recommend pausing to digest today’s news, rather than making major moves. If anything, today’s announcement reinforces the likelihood that interest rates will remain at their rock-bottom lows for years to come—good news for some long-term bondholders and bad news, of course, for savers and safe-income seekers.
You gotta hand it to Bill Gross. The legendary bond investor has a net worth estimated in the billions, an ocean-side office in Newport Beach, Calif., and a reported devotion to yoga. But despite those seemingly sunny, serene circumstances, Gross maintains one of the more glum outlooks among professional money managers. In his August investment outlook letter, the founder of Pimco projects the death of stocks—or, as he puts it, “the cult of equity is dying.” He sees inflation-adjusted returns of around zero for a diversified portfolio of stocks and bonds. What’s an investor to do?
For one, take Gross’s words with a grain of sea salt, experts say. “These are great headline grabbers, but his crystal ball on equities is no better than anyone else’s,” says Larry Glazer, managing partner at Mayflower Advisors, a wealth management firm in Boston. In 2002, Gross predicted that the Dow would fall from 8,500 to 5,000, instead of rising as it did to a peak of 14,000 in October of 2007. Gross has a better track record with bonds—his $263 billion Pimco Total Return Fund has outperformed its benchmark and its fund peers for much of the past 10 years—but his early withdrawal from Treasuries cost the fund dearly in 2011.
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