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Hi all,
My dad an I put together a newsletter at the end of March for our website. So far everything mentioned has happened with the banking sector. Please feel free to read and comment below. I have deleted the Yield and Index returns because of spacing issues when I copied and pasted.
Thanks
TJK
April 2009 Update
Market Recap
The first quarter of 2009 gave investors plenty to think about. The volatility in equity prices was extreme as the Dow Jones Industrial Average see sawed between 6440 and 9175, before closing at 7608 on March 31st. The Dow turned in its worst January performance ever, followed by its worst February since the Depression. Thank goodness March came along, giving us our best monthly gain in six years. We believe the market hit bottom on March 9th and will continue to respond favorably to monetary policy from the Federal Reserve Bank (Fed).
The Fed left key short-term bank lending rates at record lows. Economists predict the Fed will continue to hold rates at current levels for the balance of 2009. In addition to low lending rates, the Fed has launched a bold $1.2 trillion dollar program in an effort to revive economic growth. This program will pump money directly into the economy through the Fed’s purchase of government bonds. We feel the growth in the money supply, along with continued low lending rates, will provide a needed catalyst to the economy and to the equity markets. We also feel that economic recovery will remain the Fed’s primary focus while inflation concerns remain secondary.
The Numbers
First Quarter 2009:
The S&P 500 index declined 105 points or 11.7%.
The Russell 2000 index declined 77 points or 15.4%.
The Nasdaq Composite declined 48 points or 3.1%.
U.S. Treasury rates ticked up during the first quarter. We believe this was largely due to an over-bought market. We maintain our view that U.S. Treasury yields should stabilize throughout 2009.
Federal Discount rate remains at 0.50% vs. 2.50% a year ago.
Federal Funds rate remains at 0.17%.
Conventional mortgage rates fell below 5%, to 4.64%
The unemployment rate increased to 8.5% during the first quarter of 2009.
Summary
While the economy continues to face many challenges during 2009, we believe there will be a recovery in the equity markets in 2009. While unemployment continues to grow, unemployment is a lagging indicator and will not improve until recovery is well underway by early 2010. The equity markets are forward looking and will recover 6 – 12 months ahead of the economy. Several factors that will influence the recovery include:
1. Federal Reserve Bank’s aggressive monetary policy of low interest rates combined with rapid expansion of the money supply.
2. Easing of mark-to-market accounting rules will favorably impact reserve requirements for financial institutions.
3. Improved profitability of the banks will lead to improved confidence in the financial markets and the economy.
4. Consumers are saving more to shore up their balance sheets. This will lead to normalized spending, as confidence in the economy improves.
5. Consumer spending should also get a boost from lower oil and energy costs.
Mueller Asset Management is advising investors to harvest losses in individual equity shares. The time is right to sell under performing assets and book losses for tax purposes. The proceeds can then be invested in broadly based Exchange Traded Funds (ETFs) across several asset classes. By doing this, an investor can avoid the “Wash Sale” rule from the Internal Revenue Service. This rule prohibits a taxpayer from claiming a loss on the sale of an investment when the same investment was purchased within thirty days before or after the sale date.
My dad an I put together a newsletter at the end of March for our website. So far everything mentioned has happened with the banking sector. Please feel free to read and comment below. I have deleted the Yield and Index returns because of spacing issues when I copied and pasted.
Thanks
TJK
April 2009 Update
Market Recap
The first quarter of 2009 gave investors plenty to think about. The volatility in equity prices was extreme as the Dow Jones Industrial Average see sawed between 6440 and 9175, before closing at 7608 on March 31st. The Dow turned in its worst January performance ever, followed by its worst February since the Depression. Thank goodness March came along, giving us our best monthly gain in six years. We believe the market hit bottom on March 9th and will continue to respond favorably to monetary policy from the Federal Reserve Bank (Fed).
The Fed left key short-term bank lending rates at record lows. Economists predict the Fed will continue to hold rates at current levels for the balance of 2009. In addition to low lending rates, the Fed has launched a bold $1.2 trillion dollar program in an effort to revive economic growth. This program will pump money directly into the economy through the Fed’s purchase of government bonds. We feel the growth in the money supply, along with continued low lending rates, will provide a needed catalyst to the economy and to the equity markets. We also feel that economic recovery will remain the Fed’s primary focus while inflation concerns remain secondary.
The Numbers
First Quarter 2009:
The S&P 500 index declined 105 points or 11.7%.
The Russell 2000 index declined 77 points or 15.4%.
The Nasdaq Composite declined 48 points or 3.1%.
U.S. Treasury rates ticked up during the first quarter. We believe this was largely due to an over-bought market. We maintain our view that U.S. Treasury yields should stabilize throughout 2009.
Federal Discount rate remains at 0.50% vs. 2.50% a year ago.
Federal Funds rate remains at 0.17%.
Conventional mortgage rates fell below 5%, to 4.64%
The unemployment rate increased to 8.5% during the first quarter of 2009.
Summary
While the economy continues to face many challenges during 2009, we believe there will be a recovery in the equity markets in 2009. While unemployment continues to grow, unemployment is a lagging indicator and will not improve until recovery is well underway by early 2010. The equity markets are forward looking and will recover 6 – 12 months ahead of the economy. Several factors that will influence the recovery include:
1. Federal Reserve Bank’s aggressive monetary policy of low interest rates combined with rapid expansion of the money supply.
2. Easing of mark-to-market accounting rules will favorably impact reserve requirements for financial institutions.
3. Improved profitability of the banks will lead to improved confidence in the financial markets and the economy.
4. Consumers are saving more to shore up their balance sheets. This will lead to normalized spending, as confidence in the economy improves.
5. Consumer spending should also get a boost from lower oil and energy costs.
Mueller Asset Management is advising investors to harvest losses in individual equity shares. The time is right to sell under performing assets and book losses for tax purposes. The proceeds can then be invested in broadly based Exchange Traded Funds (ETFs) across several asset classes. By doing this, an investor can avoid the “Wash Sale” rule from the Internal Revenue Service. This rule prohibits a taxpayer from claiming a loss on the sale of an investment when the same investment was purchased within thirty days before or after the sale date.