Weekly Market Update through 10/22/10

as of October 22, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 11.48% 8.71% 3.74% 3.74%
S&P 500 10.46% 7.80% 3.77% 3.77%
DJ Industrial Average 13.46% 9.10% 3.34% 3.34%
Nasdaq Composite 15.68% 10.12% 4.71% 4.71%
Russell 2000 16.17% 13.58% 4.08% 4.08%
EAFE Index* 1.44% 2.72% 4.02% 4.02%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 8.44% 8.36% NA 0.39%
Barclays Intermediate US Gov/Credit 8.10% 7.89% NA 0.42%
Barclays Municipal  7.81% 6.93% NA 0.09%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $82.41    $82.88
Natural Gas    $3.28    $3.45
Gold    $1,343.30    $1,367.20
Euro    $1.40    $1.39
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 46.30%      
S&P 500 44.12%      
DJ Industrial Average 42.68%      
Nasdaq Composite 52.61%      
Russell 2000 57.79%      
EAFE Index* 42.77%      
*EAFE index does not include dividends.        
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Weekly Market Update through 10/15/10

as of October 15, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 10.37% 8.13% 3.20% 3.20%
S&P 500 9.45% 7.15% 3.14% 3.14%
DJ Industrial Average 12.95% 8.34% 2.63% 2.63%
Nasdaq Composite 14.76% 9.64% 4.25% 4.25%
Russell 2000 14.27% 13.53% 4.03% 4.03%
EAFE Index* 1.80% 3.19% 4.50% 4.50%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 8.44% 8.04% NA 0.09%
Barclays Intermediate US Gov/Credit 8.18% 7.72% NA 0.25%
Barclays Municipal  7.87% 6.87% NA 0.04%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $82.88    $82.68
Natural Gas    $3.45    $3.62
Gold    $1,367.20    $1,347.50
Euro    $1.40    $1.40
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 46.49%      
S&P 500 44.20%      
DJ Industrial Average 42.67%      
Nasdaq Composite 52.96%      
Russell 2000 58.61%      
EAFE Index* 43.79%      
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Weekly Market Update through 10/08/10

as of October 8, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 12.38% 7.03% 2.14% 2.14%
S&P 500 11.59% 6.13% 2.16% 2.16%
DJ Industrial Average 15.55% 7.79% 2.10% 2.10%
Nasdaq Composite 14.26% 6.66% 1.42% 1.42%
Russell 2000 15.65% 12.01% 2.64% 2.64%
EAFE Index* 2.75% 1.89% 3.18% 3.18%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 8.47% 8.64% NA 0.64%
Barclays Intermediate US Gov/Credit 8.11% 8.18% NA 0.68%
Barclays Municipal  6.57% 6.96% NA 0.13%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $82.68    $81.80
Natural Gas    $3.62    $3.73
Gold    $1,347.50    $1,313.60
Euro    $1.39    $1.37
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 46.22%      
S&P 500 43.97%      
DJ Industrial Average 42.82%      
Nasdaq Composite 51.10%      
Russell 2000 58.14%      
EAFE Index* 43.27%      
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Act Now to Save NC Taxes on Section 529 College Savings Plan Contributions and Rollovers

Tax breaks for the North Carolina Section 529 College Savings Plan are expiring 1/1/2012 for joint incomes over $100,000.  Currently, NC joint filers are eligible for a deduction of up to $5,000 from their state taxable income for contributions to the plan.  Single filers can deduct up to $2,500 in contributions.  These deduction levels are regardless of your income level for the 2010 and 2011 tax years.  For a couple in the 7% tax bracket, this would equate to $350 in savings on contributions of $5,000.

One interesting wrinkle is that rollover contributions from other state’s 529 plans are also eligible for the deduction.  If you currently have balances in another state’s plan, you should consider rolling them into the North Carolina plan.  Couples should contribute or rollover at least $5,000 for both 2010 and 2011 to obtain the maximum tax deduction each year.  Withdrawals from a 529 plan are income tax-free if used for qualified higher education expenses (college and beyond).

Most people that we see do not have sufficient education savings for their children.  How much you need to save depends on a variety of assumptions such as the current cost of education, the inflation rate of these costs and the rate of return on your education savings.  For a child born today and attending UNC Chapel Hill at age 18, you would need to save about $517 per month until they begin college.*

The cost of waiting to begin saving is significant.  For a ten-year old, you would need to save about $1,008 monthly under the same assumptions. 

Now is the time to get started or increase your education savings, while getting a little tax benefit.  All forms are available online at www.cfnc.org.  The North Carolina plan uses Vanguard funds as investment options, and the cost is actually slightly lower than Vanguard’s own Nevada 529 plan (which I currently have for my children).  I intend to roll these balances over to the North Carolina plan.  If I can save $700 in state income tax over the next two years by pushing a few buttons, I will certainly do it.

*Assumes:  $18,000 current annual education cost (tuition, books, fees, room & board); 7% annual inflation on education costs; 8.6% annual total return on education investments.

Bill Hansen, CFA

October 8, 2010

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Weekly Market Update through 10/01/10

as of October 1, 2010        
  Total Return
Index 12 months YTD 3rd QTR Sept
Stocks        
Russell 3000 14.54% 5.24% 11.53% 9.44%
S&P 500 13.58% 4.35% 11.29% 8.92%
DJ Industrial Average 17.00% 5.98% 11.12% 7.85%
Nasdaq Composite 16.41% 5.26% 12.62% 12.18%
Russell 2000 17.89% 9.64% 11.29% 12.46%
EAFE Index* 2.82% -0.82% 15.79% 9.49%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.76% 7.98% NA 0.01%
Barclays Intermediate US Gov/Credit 7.38% 7.46% NA 0.01%
Barclays Municipal  5.50% 6.68% NA -0.14%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $81.80    $76.78
Natural Gas    $3.73    $3.77
Gold    $1,313.60    $1,298.90
Euro    $1.37    $1.34
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 45.33%      
S&P 500 43.06%      
DJ Industrial Average 41.90%      
Nasdaq Composite 50.61%      
Russell 2000 56.53%      
EAFE Index* 41.14%      
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Weekly Market Update through 9/24/10

as of September 24, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 12.14% 5.16% 11.93% 9.84%
S&P 500 11.55% 4.54% 11.99% 9.60%
DJ Industrial Average 14.96% 6.26% 11.85% 8.55%
Nasdaq Composite 14.14% 5.72% 13.21% 12.76%
Russell 2000 12.96% 8.24% 10.39% 11.55%
EAFE Index* 0.68% -1.02% 16.06% 9.75%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.93% 7.51% NA -0.30%
Barclays Intermediate US Gov/Credit 7.52% 7.04% NA 0.09%
Barclays Municipal  6.33% 6.88% NA -0.11%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $76.78    $73.75
Natural Gas    $3.77    $3.89
Gold    $1,298.90    $1,279.90
Euro    $1.34    $1.30
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 45.93%      
S&P 500 43.86%      
DJ Industrial Average 42.76%      
Nasdaq Composite 51.78%      
Russell 2000 56.45%      
EAFE Index* 41.87%      
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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What’s the Score?

In some ways, mutual funds are more difficult to evaluate than individual stocks. It’s harder to drill down when there’s so far to go (kind of like deepwater drilling as opposed to land drilling – you have to get past all the water first). We rely primarily on Morningstar for our mutual fund research, and the data is updated monthly. We used to review a section of the mutual fund buy list each week (large caps one week, mid caps the next, and so on), but it took too long to rotate through the list, and we wanted to increase our review frequency to match the Morningstar updates. But how do we sift through that mountain of data monthly? I have no objection to hard work, but I like to spend my time wisely, so we came up with a scoring system.

In short, I load a selection of the new Morningstar data into our buy list spreadsheet each month. We look at total return (for the trailing 12 months, 3, 5, and 10 years), the fund’s percentile rank in its peer category, manager tenure, Sharpe ratio, alpha and beta to the best fit index, 3 and 5 year standard deviation, turnover ratio, gross expense ratio, trailing 12 month yield, and correlation (R2) to the best fit index. The spreadsheet extracts some of that data (3 and 5 year category rank, expense ratio, alpha, beta, Sharpe ratio, and manager tenure) and scores it. For example, if a fund’s category rank is in the 50th percentile or higher, it gets 0 points in that column. If it falls between 25th and 50th, it gets half a point, and if it falls in the 1st to 25th percentile, it gets a full point. There are 7 metrics on which a fund is scored, so the highest point value possible is 7, and the lowest is 0. Funds that score between a 5 and 7 are buys, between 2.5 to 4.5 are neutrals, and 2 and below are sells.

This is just a starting point, however. Once the data is entered and the scores are tallied, I spy with my little eye any calculated scores that don’t jive with the current IPC rating. These are analyzed further to see if an IPC review and vote are necessary. Sometimes, a fund can fall from a buy to a high neutral based on a slight decrease in the alpha, for example; further inspection will show that the alpha (though lower) is still positive, the fund’s long-term record is attractive and all the other fundamentals measure up. In a case like that, we might choose to leave the fund a buy. The scoring system really functions as a first pass, a way to flag changes in the funds from month to month and help focus attention on funds that need more in-depth review.

Sarah DerGarabedian, Research and Trading Associate

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Weekly Market Update through 9/17/10

as of September 17, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 8.07% 2.95% 9.58% 7.53%
S&P 500 7.80% 2.42% 9.72% 7.38%
DJ Industrial Average 11.41% 3.79% 9.25% 6.03%
Nasdaq Composite 9.98% 2.79% 10.07% 9.64%
Russell 2000 7.22% 5.07% 7.15% 8.28%
EAFE Index* -3.67% -3.68% 12.94% 6.79%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.74% 7.11% NA -0.67%
Barclays Intermediate US Gov/Credit 7.28% 6.61% NA -0.31%
Barclays Municipal  6.78% 6.48% NA -0.48%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $73.75    $73.20
Natural Gas    $3.89    $3.84
Gold    $1,279.90    $1,247.60
Euro    $1.30    $1.27
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 44.60%      
S&P 500 42.60%      
DJ Industrial Average 41.21%      
Nasdaq Composite 49.80%      
Russell 2000 54.30%      
EAFE Index* 39.97%      
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Is the Latest Tax Proposal What We Need?

The chatter for tax reform is increasing.  There is more talk of restructuring the tax code to provide a more permanent solution.  There is a bipartisan proposal worth noting…S.3018, by Senators Wyden (D_OR) and Gregg (R-NH). 

The proposal would limit the tax brackets to three.  Couples would pay 15% on the first $75,000 of income, then 25% on the next $65,000 and 35% over $140,000.  Note the 35% bracket starts much lower then the current $373,650 for that bracket.  This proposal would cut the income levels in half for single tax-filers.  They would also like to limit itemized deductions so the standard deductions would increase sizably, up to $30,000 for couples and half that for singles.

This would eliminate the alternative minimum tax and deduction phase outs for those with higher incomes. There is a 35% exclusion on dividends and long term capital gains, which affectively makes the top rate on those items 22.75%.  The proposal would also eliminate deductions on items such as moving expenses and deferred interest on newly issued savings bonds.  Employer provided meals and lodging would be taxed as income to the employee.

It is estimated that the net of all this would be a $200 billion tax hike on individuals over ten years.

However, the proposal would also lower the corporate tax to a flat 24%. That is much lower than the current 35% bracket.  This effectively lowers the corporate tax bill over ten years by $200 billion.  

Wow, that is a revenue neutral move for the government and a tough sell for law makers.  It would allow corporations to spend and invest more, which would allow them to hire more workers, so it could have a simulative effect on the economy.  However, this bill may not come to pass.  It could be turned upside down so that an individual’s taxes could decrease and corporation’s taxes could increase.  We will have to wait and see.  

Gregory D. James, CFP®

Partner

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Weekly Market Update

as of September 3, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 13.25% 0.99% 7.49% 5.48%
S&P 500 12.32% 0.41% 7.57% 5.28%
DJ Industrial Average 14.85% 2.12% 7.49% 4.33%
Nasdaq Composite 13.71% -0.93% 6.09% 5.67%
Russell 2000 15.87% 3.71% 5.76% 6.87%
EAFE Index* 1.61% -6.06% 10.15% 4.16%
*EAFE index does not include dividends.        
         
Bond market data not available due to holiday.      
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $  73.20    $  74.67
Natural Gas    $  3.84    $  3.72
Gold    $  1,247.60    $ 1,237.50
Euro    $  1.2749    $  1.2705
         
         
RECOVERY!        
  Since 3/09/09      
Index  annualized      
Stocks        
Russell 3000 44.10%      
S&P 500 42.01%      
DJ Industrial Average 40.93%      
Nasdaq Composite 47.66%      
Russell 2000 54.67%      
EAFE Index* 38.84%      
*EAFE index does not include dividends.        

Mark A. Lewis

Research & Trading Associate

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