Retire Rich

August 7, 2009

Stock Market Just Might Actually Be On the Mend

The average return of U.S. equity mutual funds in the second quarter, a stunning 19.77%, was certainly welcome news, but it gave investors absolutely no reason to believe the stock market was turning around. After all, what fundamentals were there?

The market's surprising ascent was obviously not based on earnings, which continue to be steeply negative; the consumer, who's still saving 6.9% of their earnings rather than spending; an improvement in unemployment, which is projected to top 10% this year; or corporate investments, research and development, all of which are stagnant.

Value, in fact, has become the new watchword of CEOs of luxury and bargain brand retailers and manufacturers alike.

And remember, housing prices are down as much as 25% in even the strongest markets, like New York, and year-to-date through the end of June, while U.S. diversified equity funds may have risen 6.51%, they were still down 26.52% from a year ago.

Nonetheless, there have been a few significant events recently that appear to indicate the stock market might deliver decent returns in the second half of this year.

As we report in "Week in Review," mutual, pension and hedge fund managers have been investing large quantities of cash in recent weeks. And retail investors have become more comfortable moving out of cash and money market funds back into stocks and equity and fixed-income funds.

Sentiments were certainly buoyed last Monday, when the Standard & Poor's 500 Index broke above 1,000 on the news of a government report that construction spending rose in June and manufacturing will grow next month.

Taking all of this into consideration, BlackRock issued an optimistic outlook last week, noting that while a "great deal of uncertainty remains" and we have yet to see "a full-fledged recovery or a true upturn in manufacturing demand," there have been signs of stabilization in the United States in terms of home sales, housing inventories, business confidence and productivity levels.

While it would not be realistic to expect a strong recovery following this recession, as is the cyclical norm, the government's monetary and fiscal stimulations are beginning to kick in, and as cash from the sidelines moves into the market, equity returns could be fairly strong and steady.

(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com/

Recent Posts

Tear a Page From the AARP/Today Show Playbook

America has yet to witness the tremendous societal transformation retiring Boomers will have, as the oldest is a mere 64 and the youngest, 46. But we are beginning to see signs of the tsunami-sized impact this army of 77 million will have on the workplace, the economy, healthcare and even the arts and entertainment. AARP has just formed a timely, unbelievably beneficial partnership with NBC's "Today Show." Beginning tomorrow, March 9, the No. 1 morning news program that reaches 5.9 million viewers a day, is bringing back former Emmy Award-winning host Jane Pauley to produce and report a monthly segment called, "Your Life Calling."

It's About Time for an About-Face for Funds

It's about time mutual fund product developers thought out of the Morningstar investment-style box to give portfolio managers the ability to do an about-face.

One of the most critical discussions to come out of the financial crisis has been the questioning of the rigid investment mandates of mutual funds and the soundness of 60-year-old modern portfolio theory-since correlations between investment classes are obviously becoming more intricately woven in the global economy of the 21st century and the markets are prone to increasingly higher volatility and risk.

Extreme Makeover: 401(k) Edition

Investors are about to test drive 401(k) plans with a 21st Century whole new look and feel. The Department of Labor is promising streamlined rules for 401(k) advice that plan sponsors may actually use. The government is looking into the possibility of offering annuities or other lifetime income options in defined contribution plans.

C- Grade is Nothing To Crow About for 401(k)s

The mutual fund industry should proudly celebrate Americans' 73% approval rating for 401(k)s, according to an Investment Company Institute report, "Enduring Confidence in the 401(k) System." In our book, a 73% rating equals a C- grade that, in fact, should be a wake-up call for the industry to do a far better job of equipping Americans to adequately prepare for a decent and healthy life in their old age.

Index of Posts

0 Comments

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.

Not Registered?

You must be registered to post a comment. Click here to register.