Weekly Market Update through 12/03/10

as of December 3, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 16.22% 13.68% 8.49% 3.81%
S&P 500 13.61% 11.91% 7.72% 3.76%
DJ Industrial Average 12.81% 11.99% 6.08% 3.42%
Nasdaq Composite 20.48% 15.32% 9.66% 3.74%
Russell 2000 30.09% 22.29% 12.06% 4.05%
EAFE Index* 0.30% 2.32% 3.62% 5.36%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.86% 6.97% NA -0.68%
Barclays Intermediate US Gov/Credit 5.56% 6.66% NA -0.53%
Barclays Municipal  3.98% 4.13% NA -0.26%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $89.24    $84.55
Natural Gas    $4.48    $4.42
Gold    $1,415.40    $1,364.10
Euro    $1.32    $1.31
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 93.84% 46.38%    
S&P 500 87.79% 43.73%    
DJ Industrial Average 82.69% 41.47%    
Nasdaq Composite 107.87% 52.39%    
Russell 2000 125.60% 59.74%    
EAFE Index* 77.47% 39.13%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Job Picture Improving, But Slowly

On the first Friday of each month at 8:30am, the Bureau of Labor Statistics (BLS) releases information on job gains or losses from the previous month.  This is referred to as the nonfarm payroll report. 

The November report was released this morning, indicating a gain of +39,000 jobs.  This was below the consensus expectation of +145,000 jobs.  The unemployment rate increased from 9.6% to 9.8%.

Many people are questioning the economic recovery since the unemployment rate continues to climb.  The first thing to remember is that there is a large margin of error in the nonfarm payrolls report (plus or minus 100,000).  This means that the current report could be anywhere from +139,000 to -61,000.  As a frame of reference, it takes a monthly increase of about +125,000 jobs to keep unemployment rate steady and +250,000 to make it decline.  Furthermore, the numbers are often revised significantly in subsequent reports.  For example, in September the original report was a decline of -95,000 in total payroll employment.  This was revised upward to -41,000 in October, then up again to -24,000 in November.  October was initially stronger than expected at +151,000 versus an expectation of +60,000.  In November, this gain was revised upward to +172,000.

Earlier in the week, the ADP jobs report came out slightly better than expected.  While ADP is the nation’s largest payroll processor, I have found that their report has its limitations.  The ADP report is more focused on small businesses, while the government statistics are broader in nature. Unfortunately both the BLS and ADP reports can create short-term volatility in the stock market.  In the long run, it’s like last year’s Super Bowl:  I don’t even remember who played.

Rather than focusing on the month-to-month changes, we believe what is important is the bigger picture.  We are encouraged that payroll employment has increased by an average of 86,000 per month since its recent low point in December 2009.  Since that time, the economy has added about 1 million jobs.  Jobs are being created, although a bit more slowly than we would like.  It is important to remember that the current pace of job creation is a dramatic improvement from the monthly job losses of -524,000 to -651,000 that we were seeing in late 2008 and early 2009.  Unemployment is a lagging indicator, and will be one of the last things to improve as the economy recovers.

 Bill Hansen, CFA

Managing Partner

December 3, 2010

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Weekly Market Update through 11/26/10

as of November 26, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 11.87% 10.32% 5.29% 1.33%
S&P 500 9.27% 8.63% 4.56% 0.73%
DJ Industrial Average 8.90% 9.04% 3.29% 0.08%
Nasdaq Composite 19.73% 12.77% 7.23% 1.25%
Russell 2000 28.53% 18.43% 8.53% 4.26%
EAFE Index* 1.05% -0.71% 0.54% -2.90%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate NA 7.50% NA -0.76%
Barclays Intermediate US Gov/Credit NA 7.03% NA -0.86%
Barclays Municipal  NA 4.18% NA -2.21%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $84.55    $81.54
Natural Gas    $4.42    $4.14
Gold    $1,364.10    $1,354.50
Euro    $1.31    $1.36
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 88.13% 44.47%    
S&P 500 82.28% 41.84%    
DJ Industrial Average 77.88% 39.83%    
Nasdaq Composite 103.26% 51.12%    
Russell 2000 118.49% 57.61%    
EAFE Index* 72.21% 37.22%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Weekly Market Update through 11/19/10

as of November 19, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.36% 10.87% 5.81% 1.83%
S&P 500 11.45% 8.84% 4.75% 0.94%
DJ Industrial Average 10.68% 9.27% 3.48% 0.29%
Nasdaq Composite 18.53% 11.99% 6.40% 0.42%
Russell 2000 25.13% 16.76% 6.94% 2.68%
EAFE Index* 4.46% 2.85% 4.15% 0.58%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.52% 7.51% NA -0.75%
Barclays Intermediate US Gov/Credit 6.13% 7.04% NA -0.85%
Barclays Municipal  4.35% 3.64% NA -2.72%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $81.54    $85.59
Natural Gas    $4.14    $3.81
Gold    $1,354.50    $1,362.90
Euro    $1.36    $1.36
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 89.06% 45.23%    
S&P 500 82.65% 42.32%    
DJ Industrial Average 78.27% 40.31%    
Nasdaq Composite 101.74% 50.86%    
Russell 2000 115.37% 56.75%    
EAFE Index* 78.39% 40.37%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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What would you say ya do here?

I was recently asked to write a summary of Parsec’s investment process, in a relatively jargon-free, easy-to-understand manner. As it happens, it is also my turn to post the blog, so surprise! I’ll be killing two birds with one stone. In much the same manner Andie Walsh created her prom dress in Pretty in Pink, I have fashioned this summary from bits and pieces of preexisting brochures and other client materials, so it may look a little familiar:

We follow a long-term investment strategy based on diversification and reduced risk. Although we create a customized portfolio for every client, our overall investment approach includes:

  • Balanced investment between growth and value, including small-, mid- and large-cap companies, with some weight in international markets;
  • Individual stocks for the large-cap portion of a portfolio (when appropriate to account size), carefully researched and chosen by our Investment Policy Committee;
  • Equity mutual funds for the mid-cap, small-cap, and international portions of a portfolio;
  • High-quality short- and intermediate-term bond funds or individual bonds for clients who require a fixed-income allocation.

We follow a bottom-up stock selection process focusing on several fundamentals including:

  • Current valuation relative to projected earnings growth;
  • Price/earnings ratio relative to the overall market and to the company’s own historical range;
  • Degree of financial leverage, avoiding heavily indebted companies;
  • Level and consistency of profit margins.

Based on our research and analysis, we have compiled a recommended list of securities. We continually monitor the prices of the securities on this list, as well as any news regarding these holdings. In addition, every security in our coverage universe is formally reviewed at least 3 to 4 times a year, and more often if circumstances dictate.

Our Investment Policy Committee meets weekly to discuss each company and vote on a recommendation. If the committee votes to sell a holding, a block trade is initiated across all discretionary client accounts so that the committee’s convictions are effected on a firm-wide basis in an orderly and timely fashion. When the trade is executed, all accounts participating in the trade receive the same price.

Investing in securities involves risk of loss that clients should be prepared to bear.  Investment risk consists of both systematic risk and unsystematic risk.  Unsystematic risk is not related to the market as a whole, but rather is associated with a specific firm or investment.  Systematic risk is the risk associated with the overall market that is not unique to any one investment vehicle. It is possible to reduce unsystematic risk by creating a portfolio diversified across many different companies and sectors.

It is not possible to eliminate systematic risk.  Macroeconomic factors such as inflation, unemployment, corporate earnings, commodity prices, and interest rates all contribute to systematic risk since they influence the prices of all risky assets. However, it is possible to lower systematic risk somewhat by diversifying internationally, since economic variables in the U.S. are not necessarily correlated with those in other countries. Of course, investing internationally exposes investors to risks related to social, political, and economic factors, as well as fluctuating exchange rates.

Sarah DerGarabedian, Research and Trading Associate

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Market Update through 11/12/10

 

as of November 12, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.54% 10.60% 5.55% 1.58%
S&P 500 12.53% 9.42% 5.32% 1.46%
DJ Industrial Average 12.76% 9.85% 4.06% 0.82%
Nasdaq Composite 18.38% 11.92% 6.42% 0.49%
Russell 2000 25.54% 16.22% 6.50% 2.32%
EAFE Index* 3.16% 3.18% 4.49% 0.91%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.26% 7.77% NA -0.51%
Barclays Intermediate US Gov/Credit 7.10% 7.55% NA -0.38%
Barclays Municipal  6.65% 5.49% NA -0.98%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $85.59    $86.25
Natural Gas    $3.81    $4.08
Gold    $1,362.90    $1,389.20
Euro    $1.36    $1.39
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 88.59% 45.90%    
S&P 500 83.61% 43.59%    
DJ Industrial Average 79.20% 41.53%    
Nasdaq Composite 101.74% 51.87%    
Russell 2000 114.41% 57.48%    
EAFE Index* 78.97% 41.42%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Politics and Stocks

In this murky soup of American politics, we try to place blame on one politician or another for his or her influence over policies that may or may not directly affect the enormous capitalist economy that we have. People often ask, “Is it better for the stock market when there is a Democratic President/Congress or a Republican one?

According to Crandall, Pierce & Co., the Dow Jones Industrial Average had the following results. This is for the 1945-2009 time period.

Circumstance Average DJIA Annual Return
   
Who is the President?  
Democratic President    9.43%
Republican President    6.81%
   
What happens when parties line-up for President and Congress?  
Democratic President, Senate & House 7.43%
Republican President, Senate & House 14.06%
   
What is the best historical scenario for the stock market?   
Democratic President and Republican Senate & House 14.67%
   
*Since 1945 there has not been a line up of the current situation: Democratic President, Democratic Senate and Republican House.  

Notably, all returns are positive, pointing to the fact that on average annual stock returns are positive regardless of politics. The dispersion of returns is large enough however that knowing the average return does not give you much insight into what stock returns will be in any given year. Since you can’t really use this information to your benefit, it is best to keep a long-term perspective with a well-diversified portfolio.

It is my opinion that so many factors affect the stock market that this is no true indicator of stock market performance. The market is affected by past policy and present decisions, as well as investor expectations. It is affected by a global economy and enormous world-wide demographics. Nevertheless, we do get asked the question fairly often, so here are the statistics – but you may want to take them with a grain of salt.

Harli L. Palme, CFP®

Financial Advisor

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Weekly Market Update through 11/05/10

as of November 5, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 19.04% 12.92% 7.77% 3.72%
S&P 500 17.26% 11.77% 7.59% 3.64%
DJ Industrial Average 17.50% 12.21% 6.29% 2.98%
Nasdaq Composite 23.76% 14.60% 8.97% 2.89%
Russell 2000 28.38% 18.98% 9.03% 4.75%
EAFE Index* 8.16% 5.74% 7.08% 3.41%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 8.67% 8.63% NA 0.28%
Barclays Intermediate US Gov/Credit 8.43% 8.38% NA 0.39%
Barclays Municipal  7.75% 6.50% NA -0.05%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $86.25    $82.92
Natural Gas    $4.08    $3.93
Gold    $1,389.20    $1,349.80
Euro    $1.39    $1.38
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 92.56% 48.39%    
S&P 500 87.55% 46.05%    
DJ Industrial Average 83.05% 43.93%    
Nasdaq Composite 106.57% 54.80%    
Russell 2000 119.50% 60.56%    
EAFE Index* 83.41% 44.10%    
*EAFE index does not include dividends.

Mark A. Lewis

Research & Trading Associate

       
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Charitable Giving Tips

I recently read a study by The Center on Philanthropy at Indiana University.  “The 2008 Study of High Net Worth Philanthropy,” sponsored by Bank of America, found that over 90 percent of households surveyed planned to make donations using cash and checks in the near future.  A little over 30 percent planned to donate securities.  

As you probably know, donating appreciated securities has tax advantages.  Sure, it is not as easy as writing a check.  With proper planning and some paperwork, you can lower your tax burden while providing the donation amount you already planned to give.  

It is important to consider the option this year if you had a major tax event.  Perhaps you converted from a traditional IRA to a Roth IRA.  Maybe you have a capital gain from a stock sale.  Donating appreciated securities could minimize the resulting tax burden.      

Such donations can also become part of long-term estate planning.  Do you want to provide a legacy for the charity or charities of your choice?  Do you want to donate a fixed sum every year?  Would you like for your children to be involved in charitable giving decisions? 

Your investment advisor can assist you with both your short-term and long-term charitable giving strategies.  If you are interested in donating securities this tax year, I urge you to contact your advisor soon.  It is best to submit securities donations as early as possible to ensure processing before December 31. 

Cristy Freeman, AAMS
Senior Operations Associate

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Roth Conversion

Time is running out for a 2010 Roth Conversion! The benefits of doing a conversion in 2010 is that you can (a) pay the tax at 2010 rates or (b) stretch the tax payments out to 2011 and 2012. A Roth account grows tax free just as any other retirement account, but there are no required minimum distributions and any withdrawals are tax free. The plan to have various pots of money in your retirement years with one being tax free could be a great benefit. For more information, check out our video located at www.parsecfinancial.com/video.html.

Barbara Gray, CFP®
Partner

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