Friday, January 29, 2010
Thursday, January 28, 2010
The percentage of stocks in the S&P 500 Index trading above their 50 day moving average has declined to 34%. This percentage is approaching levels last reached mid year of last year. The percentage of S&P 500 stocks trading above their 150 day moving average remains at a high level of 75%.
Barry Ritholtz of The Big Picture website comments on sentiment this week as well. He notes in his post referring to asset allocation, American Association of Individual Investors (AAII) Equity Allocations, Deviation versus 21-Year Mean:
"while not as ample [liquidity] as near the lows buying power still remains adequate to power/move stocks higher and keep corrections fairly well contained."
Source: American Association of Individual Investors
Tuesday, January 26, 2010
Sunday, January 24, 2010
Saturday, January 23, 2010
During the depths of the financial crisis last year, high yield spreads widened to near record levels. Spreads in early 2009 approached nearly 2000 basis points. Since that time spreads have narrowed to near their long term average just below 600 basis points.
One question many high yield investors are asking is whether the strong returns in this fixed income segment are behind us. Certainly, the 58% return achieved in the Merrill Lynch High Yield Master II Index in 2009 is not likely to be repeated in 2010. However, as the below chart shows, the spread tends to continue tightening beyond the long term average as the economy improves. Given the low interest rate environment for cash and investment grade debt, investors may continue to chase high yield resulting in further spread tightening.
High Yield Spread 12 2009
An important factor for investors to consider is to establish an appropriate risk tolerance and time horizon for their investments as the stronger returns can occur later in the decade. The second slide in the below report displays the 10-year rolling returns for the S&P 500 Index since the 1930s.
Thursday, January 21, 2010
An important factor to review in selecting dividend growth stocks is S&P's Quality Ranking. Standard & Poor's states:
The ability of management to maintain stable or increasing dividends indicate the quality of the firm’s earnings and its growth prospects. The S&P Common Stock Ranking systems, for over 40 years, ranks stocks in categories based on growth and stability of earnings and dividends. [The below chart shows] ...the distribution of quality ranks of the constituents of the S&P 500 Dividend Aristocrats against those of the S&P 500 Index.
S&P 500 Dividend Aristocrats
Standard & Poor's
By: Aye M. Soe and Dave Guarino
PDF via .docstoc
Wednesday, January 20, 2010
Monday, January 18, 2010
The individual sentiment data reported last week by the American Association of Individual Investors shows bullish investor sentiment rose over six percentage points to 47.4% from last week's bullish sentiment reading of 41%. This reading is below the average plus one standard deviation of the bullish sentiment reading. The 8-period moving average of the bullish sentiment reading increased to 43% from 42% last week. At the market top near the beginning of 2000, the 8-period average was in the high 50's and even hit 60 at one point. In short, sentiment is elevated, but does not seem to be at an "extreme" level yet.
- how likely is the financial sector to incrementally grow 2010 earnings by $8 per share on average, and
- how will Washington policies: cap and trade, health care, etc., impact company earnings
Much is made of the benefit of running deficits during economic slow periods. In 1937, the Roosevelt administration and the Federal Reserve reversed liquidity measures taken to fight the Depression. This is thought to have resulted in the double dip during that time period in addition to some other factors that were not pro-business (see my post, Positive Equity Market Returns Probable In 2010). The key though is how is the deficit money being spent. The deficit funds need to be spent in productive ways that create an environment that put the jobless back to work in the private sector and not the government sector.
In summary, sentiment and allocation data appear elevated but not at extremes. At the same time the market's forward valuation does not appear too stretched. This does not mean dive head first into the market. Being selective in the companies one invest in could still provide adequate returns in 2010, but not without experiencing some volatility.
Sunday, January 17, 2010
- most major rallies (73%) resulted in a gain of between 30% and 150% and lasted between 200 and 800 trading days.
- the current Dow rally (hollow blue dot labeled you are here) has entered the low range of a "typical" rally and would currently be classified as both short in duration and below average in magnitude.
If company earnings reports meet or exceed expectations on the whole this reporting period, the market could continue to grind higher.
Saturday, January 16, 2010
If the market is similar to the 1937-1942 period, investors might want to be cognizant of policies that impacted the market and economy during the '37-'42 time period. I must say I am not in agreement with some of the author's conclusions in the article at the previous link (like continued deficit spending). What is important for investors is to understand the policies that were instituted at that time that may have prolonged the recession during that period--like the Wagner Act. Some of the policies out of Washington today look similar and could derail the recovery past 2010.
Thursday, January 14, 2010
"If an investor had put $1,000 in a portfolio of the 100 highest-yielding stocks on January 1, 1957, by December 1, 2009, he would have accumulated more than $450,000 (assuming all dividends were reinvested). That’s a hefty annualized return of 12.5%, an average of almost 2.5 percentage points per year greater than the return on the S&P index. That same $1,000 invested in the 100 lowest-yielding stocks returned only 8.8% per year."
- for 2007, at the height of the bull market, the dividend stream -- total dividends paid on all U.S. stocks -- was $288 billion.
- for 2009 through November, the dividend stream had dropped to $216 billion -- the greatest decline in that measure since the end of World War II
- the entire decline in dividends can be attributed to the financial sector, which cut its total payouts by $79 billion over the past two years. (Siegel includes General Electric because GE’s dividend reduction was caused solely by the losses at GE Capital.)
- in other sectors of the economy -- energy, health care, technology, consumer discretionary, consumer staples, telecom -- dividends have actually risen over the past two years, even with the recession.
Scoop Up Dividends
By: Jeremy Siegel
In the company's earnings release, they also announced a 4.5% increase in the quarterly dividend to 23 cents per share versus 22 cents per share in the same period last year. The company has increased its dividend each year since it first began paying one in 1992. The projected payout ratio using an average of the June 2010 year end earnings estimate ($1.24) and the June 2011 earnings estimate ($1.51) is 67%. The payout ratio trend continues to move higher with the 5-year average payout ratio equaling about 43%. The company does maintain an S&P Earnings & Dividend Quality Ranking of A-.
Sunday, January 10, 2010
Friday, January 08, 2010
Today's jobs report noted companies shed 85,000 jobs in December versus consensus expectations of a 10,000 job loss figure. Additionally, the work force declined 661,000 showing the jobless are giving up. When discouraged workers and part-time workers who would prefer full-time jobs are included, the so-called "underemployment" rate in December rose to 17.3% from 17.2% in November. This is near the record high reported in October of 17.4%.
As reported by ABC News, the administration's response to these job numbers was the implementation of a green jobs program.
"Obama announced the awarding of $2.3 billion in tax credits to companies that manufacture wind turbines, solar panels, cutting edge batteries and other green technologies. The money will come from last year's $787 billion stimulus program. He also renewed a call by Vice President Al Gore for Congress to approve an additional $5 billion to help create more such jobs."
According to the Cybercast News Service, it is noted,"Spain’s experience (cited by President Obama as a model) reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created,” wrote Calzada in his report: Study of the Effects on Employment of Public Aid to Renewable Energy Sources"
"in the study’s introduction Calzada argues that the renewable jobs program hindered, rather than helped, Spain’s attempts to emerge from its recession."
“The study’s results show how such 'green jobs' policy clearly hinders Spain’s way out of the current economic crisis, even while U.S. politicians insist that rushing into such a scheme will ease their own emergence from the turmoil,” says Calzada. “This study marks the very first time a critical analysis of the actual performance and impact has been made."
Pat Michaels, professor of environmental sciences at the University of Virginia and senior fellow in environmental studies at the Cato Institute, a free market group, told CNSNews.com that the study’s conclusions do not surprise him. He added that the United States should expect similar results with the stimulus money it spends on green initiatives.
Michaels also said he was not surprised by the study’s finding that only one out of 10 jobs were permanent.
and Here comes another multi-billion-dollar Green Jobs boondoggle
Thursday, January 07, 2010
- 804 companies cut their dividend payments in 2009 which was a 631% increase over the 110 companies that cut their dividends in 2007.
- In absolute dollars, the cuts represented $58 billion in reduced dividend income.
The current top payers (over $5 billion) are:
- AT&T ($9.9 billion rate)
- Exxon ($8.0 billion)
- Pfizer ($5.8 billion)
- Chevron ($5.5 billion)
- Johnson & Johnson ($5.4 billion)
- Verizon ($5.4 billion)
- Procter & Gamble ($5.1 billion)
2009 Worst Year Ever For Dividends;
Expects 2010 to Show Steady Improvement
Standard & Poor's
By: Howard Silverblatt
January 7, 2009
Tuesday, January 05, 2010
- 425 issues were up with an average return of 51.4%
- 73 issues were down with an average return of -14.3%.
Saturday, January 02, 2010
Friday, January 01, 2010
Below is a list of 26 companies in the S&P 500 Index that was generated using the following criteria:
- current P/E less than 15
- dividend yield greater than 2.5%
- beta less than .7
- bullish investor sentiment is reported at 49.18% this week. This is the highest level since 51% was reported on August 13, 2009.
- bearish sentiment is reported at 22.95% and is the lowest bearishness reading since 22.31% on February 27, 2007.
- the bull/bear spread is reported at 26% and is the widest spread since 28% was reported on May 8, 2008.