Changing Tax Rates And Dividend Paying Stock Performance

With the looming fiscal cliff facing investors at the start of 2013, the marginal tax rate on dividends would increase to as high as 43.4% versus the current 15% rate. Investors are asking if this substantial increase will negatively impact the performance of dividend paying stocks. Copeland Capital Management recently published a white paper analyzing the impact of changing tax rates and the performance of dividend paying stocks vis-à-vis the overall market. The firm's research concluded:

• The performance of dividend-oriented strategies...did not demonstrate any significant relationship with tax rates during years when significant changes were enacted.

•  Corporate dividend policies also showed no relationship with changes in tax rates.

•  The performance of dividend growth stocks appears to be more closely linked with the economic cycle than either absolute tax rates or changes in tax rates.

The below tables detail the calendar year returns during changing tax rate environments. In the second table, as tax rates declined from 2002 to 2003, the market actually outperformed the payers and growers. The research paper notes market upturns following economic downturns generally favor lower quality names as the economy begins to improve. In short, tax rates had less of an impact than the economic cycle itself.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

Source

Copeland White paper I: Dividends and Tax Rates (PDF)
By: David McGonigle
Copeland Capital Management
June 30, 2012
http://www.copelandcapital.com/PDF/Copeland_White_Paper_I_Dividends_and_Tax_Rates.pdf

H/T:  Advisor Perspectives

Dividend Payers In S&P 500 Index Continue To Grow

Howard Silverblatt, Senior Index Analyst for S&P Dow Jones Indices, recently noted the number of dividend payers in the S&P 500 Index has grown to 402 companies. This number reaches a level last seen in 1999. For 2012, thirteen companies have initiated dividend payments to date.

From The Blog of HORAN Capital Advisors

According to Silverblatt the dollar dividend payment for S&P 500 companies is up 14.7% so far this year. Additionally, he notes, "We expect a record $275 billion in S&P 500 dividends for 2012, up from $241 billion in 2010. The former record was $248 billion in 2008." Lastly, S&P notes, "since 1926, reinvested dividends have accounted for about 41% of the total return of the S&P 500 Index." Certainly, dividends are an important factor for investors to consider when evaluating investment choices.

With the approaching fiscal cliff at the end of the year, which includes the expiration of the current tax policy put in place during the Bush administration, companies may begin paying special dividends prior to year end. The reason for this is the fact the tax rate on dividends is scheduled to increase from 15% to a rate equal to a tax payers ordinary income tax rate.

Trahan: Equity Markets Mid-Way Through Melt Up

Francois Trahan recently spoke with Consuelo Mack on WealthTrack and stated his belief the equity market is mid-way through a melt up. He believes this could last through the end of the year and possibly into the first quarter of 2013. He believes cyclically oriented stocks like industrials and materials, as well as higher beta equities, will be the better investments during this melt up. He believes the S&P 500 Index could reach a high of 1,550. He does believe the market continues to be a secular bear one; however, he does believe we are in the midst of another cyclical bull. He notes in the past 20-years, there were four 50%+ moves in the Japanese market and our low inflation environment is not too different from theirs. In short, he believes buy and hold is dead for the foreseeable future.

From a fundamental perspective he notes several of the cyclical components of the Index of Leading Economic Indicators have turned higher: interest rate spread, average weekly manufacturing hours, and manufacturers’ new orders for consumer goods and materials. Housing continues to improve as housing affordability is at a record high. Also, investors will be drawn out of fixed investments as their low sentiment about equities will provide a tailwind for a short term equity melt up. No doubt, investors continue to allocate investment funds to fixed investments as they are in a "risk off" mindset.

Although Trahan does not provide specific stock ideas in the interview, he does state investors should focus their equity investments on dividend paying stocks. Over 60% of S&P 500 companies have a dividend yield greater than the 10-year U.S. Treasury bond.

Investor Cash Sits In Bond Funds?

In spite of the low interest rate environment, investors continue to be attracted to bond funds. As the below chart shows, fixed income mutual funds continue to attract investors' funds. However, this flow of funds into fixed investments is not inhibiting the rise in the U.S. the equity market though.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

 

Given the low level of cash in money market mutual funds as a percentage of all mutual fund assets it may be that investors have parked their cash funds into bond mutual funds. If/when investors do decide to allocate more funds to equities, fixed income investors may be in for a rude awakening. "Buyer beware" for fixed investors seems an appropriate caution in this environment. Historically, strong flows into fixed mutual funds have not coincided with a rise in the equity market. Something appears as though it needs to give.

From The Blog of HORAN Capital Advisors

Individual investor bullish sentiment as reported by the American Association of Individual Investors did see a rise in bullish sentiment this week. Bullish sentiment rose six percentage points to 36.47% versus 30.45% in the prior week. Additionally, the bull/bear spread flipped from a negative 4.48 to a positive 9.12. The six week moving average remains near a low 30, however, the trend is beginning to indicate a turn higher. Are individual investors being coaxed off the sidelines?

From The Blog of HORAN Capital Advisors

Employment Growth Simply Too Low

Friday's employment situation report by the Bureau of Labor Statistics indicated employment grew by 163,000 jobs in July. No matter how one spins this number, the rate of growth is indicative of an economy that is growing too slowly. The seasonal adjustment actually accounted for 377,000 jobs. The magnitude of this adjustment is not uncommon for the month of July though. What will be interesting is the jobs number in September as the seasonal adjustments in the last few months of the year are historically largely negative.

From The Blog of HORAN Capital Advisors

At this rate of growth, it will take more than two years to get to an employment level reached prior to the '08-'09 downturn and this is not accounting for new entrants (college graduates) into the labor force.

From The Blog of HORAN Capital Advisors

The Friday release also noted that July's unemployment rate rose to 8.3% versus 8.2% in the prior month. The U-6 rate, includes marginally attached workers, rose to 15% and the participation rate declined to 63.7% versus 63.8% in June.

From The Blog of HORAN Capital Advisors

A disappointing jobs report no matter how it gets spun.

Investor Letter July 2012

The market’s pattern YTD in 2012 resembles the market’s action in 2011 while a number of key issues continue to hang over the financial markets. In our second quarter 2011 Investor Letter, we discussed the debt ceiling debate in Washington and Standard & Poor’s subsequent negative outlook and downgrade of U.S. government debt. We also wrote about serious weather related issues that greatly influenced the commodity markets. As was the case last summer, the Euro Zone crisis continues to be an issue as many of the southern European countries attempt to get their fiscal houses in order. As Yankee great, Yogi Berra, once said, “It’s déjà vu all over again.” The most pressing current policy issue is the need for Congress to address raising the U.S. debt ceiling. Similar to last year, the debt ceiling is expected to be reached in early September. It’s not surprising that investor confidence is fragile and waning with multiple unresolved issues.

Our newsletter covers recent impacting the the investment markets.

The Letter can be accessed directly from our website at the following link: 2nd Quarter 2012 Investor Letter

From The Blog of HORAN Capital Advisors

We hope you find the content of our letter insightful as 2012 continues to unfold.

A Repeat Of History?

The market’s pattern year to date in 2012 resembles the market’s action in 2011. A number of the issues impacting the market this year are similar to those that impacted the markets in 2011. Last year investors had to digest the impact of the debt ceiling debate in Washington and S&P placing the government’s debt on negative watch (and subsequently issuing a one notch downgrade), weather related issues influenced commodity markets with flooding in a number of countries around the globe, including in the Midwest of the U.S. and wildfire and droughts impacted the southwestern and southeastern parts of the U.S. These events are again top of mind for investors this year.

From The Blog of HORAN Capital Advisors

The policy issue at the forefront of investors' minds is the need for Congress to take action on raising the U.S. debt ceiling. The debt ceiling is expected to be reached in early September and the debate around this issue will certainly impact individual investor and business confidence. Couple the debt ceiling debate with the upcoming presidential election and the “fiscal cliff” at the end of the year, it is not surprising sentiment and investor confidence is waning.

Large Decline In Individual Investor Bullish Sentiment

The American Association of Individual Investors reported investor bullish sentiment fell over eight percentage points this week. The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months. The bullish sentiment reading of 22.19% was the lowest level since August 26, 2010 when the bullish reading was reported at 20.74%. In August of 2010 the S&P 500 Index was trading at 1,055.33. In the subsequent 12-months, the S&P rose 9.8% to 1,159.27. This one behavioral measures tends to be a contrarian indicator.

From The Blog of HORAN Capital Advisors

 Maybe this reduced bullish sentiment is warranted given the uncertainty surrounding economic growth or lack there of. Yesterday The Conference board reported the Leading Economic index declined .31% in the month of June. This was the second decline in the last three months. The Conference Board noted, "The strengths among the leading indicators have become less widespread as consumer expectations and manufacturing new orders offset gains in the financial, labor, and construction-related components. Meanwhile, the coincident economic index, a measure of current economic conditions, has risen slowly but steadily in the last three months.” The report goes on to note, “The U.S. economy is growing very slowly. The CEI basically reflects this steady but soft pace of overall economic activity. The LEI is pointing to no strengthening over the next few months, as the economy continues to sail through strong headwinds domestically and internationally.”

From The Blog of HORAN Capital Advisors

Mega Cap Stocks May Be Poised To Outperform

The market's recent pullback certainly seems warranted given the lack of positive news flow both economically and fundamentally. The euro zone continues to struggle in dealing with its debt issues, corporate earnings reports for the second quarter have been less than exciting and policy uncertainty out of Washington is weighing negatively on consumer and business sentiment. This seems like a replay of last year. In spite of these headwinds the S&P 500 Index remains higher on the year by 7.9%. From a pure technical standpoint, the S&P 500 Index does remain in a short term uptrend beginning in early June but in a downtrend since May as noted in the below chart. There is resistance at the 1,374 level and support at the 50 day moving average of 1,335. Additionally, the recent decline has not occurred on large volume.

From The Blog of HORAN Capital Advisors

Caution does seem warranted for a number of reasons as outlined in earlier posts. However, when the market does begin to rally it could be mega cap stocks that lead the market higher. A recent Fidelity report, "Capitalizing on Inefficiences in Mega Cap Equities," highlights some positive attributes of these larger cap equities. In evaluating mega cap stocks, Fidelity used the 200 largest stocks in the Russell 1000 Index. On a relative valuation basis, compared to the other 800 stocks in the Russell 1000 Index, the mega cap stocks are trading at a 26% discount to the midcap stocks of the Russell 1000 Index.

From The Blog of HORAN Capital Advisors

On a P/E basis the mega caps are trading at valuation levels last seen in late 1991. Further, on a forward P/E basis, mega caps appear more attractive than their midcap counterparts.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

In looking at performance, mega cap performance has trailed significantly versus the midcap stocks.

From The Blog of HORAN Capital Advisors

And lastly, investors receive attractive dividend yields from these 200 mega cap holdings. The mega caps are yielding over 4% while the mid cap stocks yield just under 2.5%.

Volatility in the equity market seems more the norm today; however, investors seeking equity exposure might find an opportunity in these larger capitalization stocks. In Fidelity's report they evaluated the top 50 mutual funds and found the mega cap stocks were consistently under owned by most active managers.

Source:

Capitalizing on Inefficiences in Mega Cap Equities
Fidelity Investment Insights
By: Matthew Fruhan, Naveed Rahman, Alex Devereaux
June 2012
https://www.fidelity.com

Obama's Tax Platform Putting Retirees At Risk?

The current low level of CD and bond interest rates has resulted in retirees allocating more of their investment dollars to higher yielding equity and lower quality bond investments. President Obama's pledge to increase taxes on the rich ($250,000 and above in income) will likely have a negative impact on retiree incomes after 2012.

• The 2013 top marginal rate for qualified dividends increases from 15% to 44.6%.
• The tax on interest, rents, royalties, etc., increases from 35% to 44.6%.
• Long term capital gain tax increases form 15% to 25%.

These tax increases, with no commensurate proposal to reign in government spending, will have a detrimental impact on economic growth in the U.S. said Josh Brown, vice president of Fusion Analytics and author of The Reformed Broker blog.

A detailed summary of the tax implications of the Affordable Care Act can be found on the Association For Advanced Life Underwriting website.

Issues To Impact The Market In Second Half Of 2012

Investors and consumers will face a number of key issues in the second half of 2012 that are likely to impact their confidence level due to the influence these issues will have on the markets. One impact is potentially higher equity market volatility and this will not be a positive to investor confidence. Some of the issues and the respective dates investors need to keep an eye on are:

• September 2012: Debt Ceiling Debate: The market's response to the debt ceiling debate last year: it started a six week decline following S&P's downgrade of the credit rating for the U.S. President Obama has stated to Congress July 22 is the deadline for coming to an agreement to increase the debt ceiling by $2 trillion. The news flow resulting from this issue will likely have an impact on the market and influence investor confidence. The debt ceiling is expected to be reached in early September.

From The Blog of HORAN Capital Advisors

Source: The Big Picture

• November 2012, U.S. Elections: The political rhetoric will undoubtedly be raised to a heightened level as the November elections approach. Historically, the equity market is stronger in the second half of a presidential election year. Given the many issues that will need to be addressed in the balance of the year, it remains to be seen whether the market can move higher in the face of these hurdles. Also, the lame duck session of Congress could lead to market moving headlines.

From The Blog of HORAN Capital Advisors

Source: T. Rowe Price

• December 2012, Fiscal Cliff: The fiscal cliff is in reference to the expiration of the so-called Bush tax cuts, expiration of the payroll tax cut, the implementation of automatic spending cuts and the initiation of additional taxes to support the new healthcare law, all beginning in 2013. This fiscal cliff is as much as 3.9% of GDP and is likely to have a negative impact on economic growth in the U.S. The below table outlines various scenarios that could play out through 2015 and the resulting impact on GDP.

From The Blog of HORAN Capital Advisors

• December 2012, The End of Operation Twist: The Fed recently stated they will maintain Operation Twist through the end of this year. Although this liquidity program really artificially impacts the market, past Federal Reserve actions have tended to support higher equity market returns. Interestingly, each subsequent liquidity action by the Fed is having a smaller positive impact on equity market returns. The culmination of this program at the end of the year, along with the consequences of the fiscal cliff, will certainly weigh on investor sentiment. The end of prior Quantitative Easing (QE) programs have been met with a weakening equity market.

From The Blog of HORAN Capital Advisors

Source: Schwab

• Ongoing, Euro Zone Issues: The one issue that will not end any time soon is that of the EU. This European Debt Crisis link not only outlines the current actions taken by the European Union, but also is evidence of the many steps yet to be taken in an attempt to resolve the crisis in the EU. It is almost certain that every news headline on EU efforts to deal with their debt crisis will be market moving. Some will move the market higher and some will result in the equity market moving lower. The point is the EU issues will inject volatility into global markets.

Very near term, companies will begin reporting second quarter earnings. The bar is set pretty low for earnings with earnings estimated to increase only 3% in Q2. Since the beginning of Q2, earnings growth expectations have been reduced from 6.8%. According to Factset Research, analysts have reduced estimates for the third and fourth quarters as well. As of July 6th, the projected growth rate for Q3 2012 has fallen from 6.0% to 2.0%, while the projected growth rate for Q4 2012 has fallen from 16.1% to 13.9%.

The above are just some of the macro issues that will face investors in the balance of the year. The Conference Boards Consumer Confidence Index reported at the end of June showed a fourth straight monthly decline in confidence. The Board notes if this trend continues it is most likely to begin to negatively impact consumer spending.Maybe consumers and investors are taking note of these potential issues already.

Economic Decoupling Intrigue

With the hurdles facing many of the countries in the Euro zone, strategist have been tossing around the idea that the U.S. economy may in fact be decoupling from the rest of the economies around the globe. This is certainly an intriguing thought and would be supportive of better equity returns in the U.S. Better equity return doesn't necessarily mean positive returns though.

One recently cited data point is the strength of the U.S. PMI (Purchasing Managers Index) relative to other country PMIs. The PMI measures the health of the manufacturing sector of the economy. Readings greater than 50 indicate the manufacturing sector is expanding while readings under 50 indicate a contracting manufacturing sector. As displayed in the below chart, the U.S. has been a standout versus a number of the other countries and regions.

From The Blog of HORAN Capital Advisors

Source: Charles Schwab

The above chart is showing data through May and the recently reported June U.S. PMI came in at 49.7. This was the first below 50 reading for the U.S. PMI since July 2009. With the June report, it appears decoupling may in fact not be occurring since the manufacturing segments of many economies are now contracting. It is not surprising the U.S. PMI is now below 50 given the interconnectedness of the world economies and the large percentage of revenue generated outside the U.S. by U.S. companies.

From an equity market return perspective, the equity returns in the U.S. still appear to be positively correlated with equity returns outside the U.S., as well, specifically, Europe and the emerging markets. In the two charts below there remains a positive correlation between the S&P 500 Index and both the STOXX 600 Index (Europe) and the MSCI Emerging Markets Index. Positive correlation numbers indicate the two indices move in the same direction. For the emerging market index and the S&P, the recent correlation coefficent equals .62. This means 38% (.62 squared) of the variation in return is related.

From The Blog of HORAN Capital Advisors

From The Blog of HORAN Capital Advisors

In the end, I do not believe we will see a complete decoupling of the U.S. markets and economy with the other markets and economies around the world. I do believe the U.S. is in slightly better shape than many of the Euro zone economies as well as some emerging markets. Therefore, on a relative basis, the U.S. could continue to outperform a number of its foreign counterparts, with one example being the recent performance of the S&P 500 Index relative to the performance of the emerging markets index detailed below.

From The Blog of HORAN Capital Advisors

After the emerging markets outperformance from 2000 through 2010, maybe the S&P is poised for stronger relative returns in the coming decade for a whole host of reasons. Market returns do not move higher in a straight line and market volatility is likely a continuing theme. Additionally, there are near term potential headwinds: an upcoming debt ceiling debate, the fiscal cliff, the U.S elections in November, just to name a few. For a more detailed review of factors to consider, Charles Schwab's Chief Investment Strategist, Liz Ann Sonders' recently released the July Market Snapshot video and it is a worthwhile video to view.

Dividend Payments and Buybacks Decline In First Quarter

Both aggregate dividend payments and buybacks for companies in the S&P 500 Index declined in the first quarter of 2012. The decline in dividend payments is not unusual as first quarter payment amounts have been lower in Q1 versus the prior Q4 in ten out of the eleven first quarter periods since 2001. The pattern for buybacks is more mixed as aggregate buybacks have declined in six of the eleven first quarter reports since 2001. On a year over year basis, dividends are up 14.2% while buybacks actually declined 6.2%. S&P notes this decline in YOY buybacks is the first decline since the fourth quarter of 2009.

From The Blog of HORAN Capital Advisors

In a report from S&P on Tuesday, they note net dividend payments in the second quarter where higher by $12 billion, which S&P believes is a record dividend payout in aggregate dollars terms for U.S. domestic equities. Howard Silverblatt, Senior Index Analyst at S&P notes,

"Payout rates, which historically average 52%, remained near their lows at 31%. At this point, we expect to see double-digit growth in actual dividend payments for the remainder of 2012, which would equate to a 16% gain over 2011."

Complicating dividend payment trends beyond this year is the impact expiring tax legislation will have on dividends at the end of 2012 that could increase the tax rate on dividends to over 43% versus the current 15% rate.

Will Individual Investors Continue To Get The Market Direction Right?

One thing investors experienced and seemed to have learned was their mistake of piling into the stock market at the top of the technology bubble in 2000. As the below graph indicates, investors allocated significant dollars to equities, based on monthly mutual fund flows, just prior to the technology bubble bursting in early 2000. However, since that time, investors seem to be timing their market moves correctly. At the bottom of the tech bubble in 2002, investors began investing funds into equity mutual funds fairly steadily up until 2008. At the top of the market in 2008, just prior to the financial crisis that impacted the market in 2008-2009, investors began pulling funds from equities and subsequently reinvesting in stocks at the end of the recession.

From The Blog of HORAN Capital Advisors

However, since mid-2010 the S&P 500 Index is up nearly 35% and investor flows into equity mutual funds have actually been negative. They seem to sense a better opportunity in bonds. Not that bonds haven't delivered reasonable returns, but bond returns have trailed returns for the broader equity market over the most recent 2-year time period.

From The Blog of HORAN Capital Advisors

As the above two charts indicate, investors have not warmed up to equities over the last two years. There are many reasons why, volatility, euro zone issues, issues in Washington, DC, etc., but, will they be proven correct this time? The equity markets do seem to be climbing that proverbial wall of worry and maybe pessimism about the markets is overdone to the downside vis-à-vis fundamentals.

The Consequences of U.S. Government Expenditures Outpacing Revenue

One fact of little debate is the U.S. continues to spend at a rate far outpacing the amount of revenue it receives. The consequence of this level of spending is the U.S. government continues to take on a greater amount of debt each year. Further complicating this mismatch between revenue and expenditures is the level of "mandatory" expenditures is growing at a 7% rate according to the OMB. A recent report by Charles Schwab and Argus Research notes:

• Government outlays soared from 20.1% of GDP in the last Bush term to 24.4% in 2009-12. Meanwhile, government receipts fell from 17.9% of GDP in the last Bush years to 15.3% in the Obama years.

• Over half the drop in receipts has been due to lower payroll taxes.

• After 2013, the Office of Management and Budget projects interest on publicly held debt will jump
  from 8.8% to 14.5% of total receipts.

• OMB also projects that “mandatory” federal spending will rise at a 7% annual rate, from 2011 to 2017— as fast as it did in the past six years.

• The deficit is expected to decline to 3% of GDP over time, but that is based on the assumption that individual and corporate income taxes rise by rates of 10% and 17%, respectively.

From The Blog of HORAN Capital Advisors

Investor Equity Fatigue

It is understandable that investors have developed fatigue when it comes to investing in stocks. As the below chart shows, since 2000, investors have essentially made no money in stocks. Compounding this is the fact that the return necessary to recover from the equity market declines is more than double the losses that have been incurred.

From The Blog of HORAN Capital Advisors

One outcome of the equity market volatility is investors have continued to allocate more of their investment dollars to fixed income/bond investments. Given the low level of interest rates though, a spike higher in rates can have a detrimental impact on ones bond portfolio. Many investors experienced this outcome in the first quarter this year.

From The Blog of HORAN Capital Advisors

At HORAN, we believe investors can still make money in stocks; however, a buy and hold strategy will not provide the best return outcome in this environment. Being more tactical and taking a little money off the table (taking some gains) when stocks run up is a necessity during these times.

Where To Invest In The Coming Years

Richard Bernstein of Richard Bernstein Advisors and Bill Wilby, former manager of the Oppenheimer Global Fund discuss why the U.S. is the best place to invest in the coming years. For equity investments Bernstein's favorite asset class is small capitalization companies while Wilby is focusing on high quality large capitalization dividend payers.

Source: WealthTrack

The New Normal: Continued Volatility

A recent investment newsletter from PIMCO's Neel Kashkari, takes a look back at PIMCO's application of the "New Normal" comment for the global economy in the spring of 2009. "The New Normal called for long-term deleveraging that would lead to lower growth than society had been accustomed to." One outcome of this New Normal cycle has been an increase in market volatility.

A result of this heightened volatility is the fact investors have become skeptical of the equity markets. PIMCO notes:

• "From May 2002 to May 2007, during the old normal, the S&P 500 experienced a 5% correction from a recent high five times, or on average of once per year, and a 10% correction four times."

• "In the three New Normal years from May 2009 to May 2012, the S&P 500 experienced seven 5% corrections, more than twice as often, and a 10% correction three times."

This increased downside volatility is evidence investors should consider investment strategies that could limit the negative impact of downside market returns. Aside from sitting in cash, some of the strategies mentioned in the article include:

• "Buying higher-quality companies and those with strong balance sheets, because they tend to be more resilient against shocks, according to our research."

• "Buying companies at deep discounts to their intrinsic value."

• "Buying companies offering more immediate return on investment through dividends."

• "Actively hedging the portfolio, with tail risk hedging (which refers to taking a defensive position against extreme market shocks), or other means."

• "Investing in multi-asset solutions that provide diversification and include equities, fixed income securities and commodities in one vehicle."

Lastly, investors and investment advisers have a choice between active and passive investment management. A potentially significant drawback of passive investment in the New Normal environment, i.e., more frequent market declines,  is investor returns will decline with the market. The S&P 500's near 40% decline in 2008 is evidence of this type of market action. For investors taking distributions from their accounts, returns like those incurred in 2008 can be more detrimental.

For investors that incorporate some downside protection in their investment strategy, this does not come without a price. Downside protection is likely to limit some of the returns achieved in an up market. However, outperforming in a down market can still result in outperformance and higher compound returns over a complete market cycle.

Source:

Three Years and Counting
By: Neel Kashkari
PIMCO
June 2012
http://www.pimco.com/EN/Insights/Pages/Three-Years-and-Counting.aspx

Individual Investor Bullish Sentiment Remains Low

In today's sentiment survey released by the American Association of Individual Investors, bullish investor sentiment declined to 28.02% versus last week's reading of 30.47%. The bull/bear spread was also more negative at -14% versus -8% in the prior week. Additionally, the 8-period moving average of bullish sentiment is at its lowest level, 28.7%, since March of 2009 when this average was reported at 27.5%.

From The Blog of HORAN Capital Advisors

The AAII sentiment survey is a contrarian indicator and this low bullishness level is only one indicator that might suggest the market is at a low point; however, Barry Ritholtz of The Big Picture website points to an analysis by Jim Bianco at Bianco Research noting the confused sentiment of the market based on newsletter writers. Certainly, a number of issues like the euro zone crisis seem to be driving sentiment at the moment, along with recently reported weaker economic data in the U.S.

Jason Trennert: The Bill Has Come Due

Jason Trennert is interviewed by Consuelo Mack on this week's WealthTrack. Jason discusses where investors should consider allocating their investments given the uncertainty surrounding the upcoming elections and the so called $537 billion "fiscal cliff" looming large at the end of the year.

The fiscal cliff is in reference to the expiration of the so-called Bush tax cuts, expiration of the payroll tax cut, the implementation of automatic spending cuts and the initiation of additional taxes to support the new healthcare law all beginning in 2013. This fiscal cliff is 3.5% of GDP and would likely have a negative impact on economic growth in the U.S. Additionally, Jason believes high quality dividend paying stocks are like "new sovereigns" given the low level of interest rates on U.S. government debt.