Market Week: January 31, 2014

January 31st, 2014

The Markets

A double whammy helped trigger a selloff in equities last week. Weaker-than-expected manufacturing data from China helped fuel concerns about the global impact of potential additional Fed tightening next week and a stronger U.S. dollar. Some lackluster earnings reports didn’t help, though profit-taking in the wake of last year’s strong rally also could have been a factor. After declines in several emerging-market currencies, the Dow and S&P 500 dropped below their 50-day moving averages; the Dow lost 318 points on Friday alone. The Nasdaq, the small caps of the Russell 2000, and the Global Dow joined them in negative territory for the year. The global jitters had investors seeking the relative safety of Treasury bonds as the benchmark 10-year yield fell for the fourth straight week.

Market/Index

2013 Close

Prior Week

As of 1/24

Weekly Change

YTD Change

DJIA

16576.66

16458.56

15879.11

-3.52%

-4.21%

Nasdaq

4176.59

4197.58

4128.17

-1.65%

-1.16%

S&P 500

1848.36

1838.70

1790.29

-2.63%

-3.14%

Russell 2000

1163.64

1168.43

1144.13

-2.08%

-1.68%

Global Dow

2484.10

2487.32

2422.47

-2.61%

-2.48%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.84%

2.75%

-9 bps

-29 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

· Global markets became concerned about the potential implications of a tightening in China’s monetary policies after a survey showed that the manufacturing sector there contracted in January for the first time in six months. The Markit/HSBC Purchasing Managers’ Index dropped to 49.6 from 50.5 (anything below 50 represents contraction).

· After three months of declines, sales of existing homes rose 1% in December, according to the National Association of Realtors®. Even better, the NAR said sales for all of 2013 were higher than they’ve been in any year since 2006, and were up 9.1% from 2012’s annual figure.

· The Argentinian peso joined several other emerging-market currencies in declining last week. The Argentine government devalued the country’s currency in an attempt to stimulate growth, but other currencies, including the Turkish lira and the Indian rupee, have suffered recently because of fears about the global impact of future tighter monetary policies.

· The International Monetary Fund raised its forecast for global economic growth this year by 0.1% to an annual rate of 3.7%, saying that projected U.S. growth of 2.8% in 2014 will be extremely important to that forecast.

Eye on the Week Ahead

The whole world’s watching: Wednesday’s Fed announcement–Ben Bernanke’s last as chairman–could include further cuts in the Fed’s bond purchases and have repercussions in global markets. Also on tap are more earnings reports, the first look at Q4 economic growth, and data on the U.S. housing market, manufacturing, and personal spending.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Westside Investment Management, LLC

[email protected]
www.westsideim.com

The rout that refreshes?

January 26th, 2014

Those of you who follow the stock market, even casually, know that we’ve had a nasty two days in global equity markets, with the MSCI All-Country World index tumbling -3.5% in just 48 hours. Today was the sharpest one-day drop since last June, and the biggest weekly decline since late 2011. Moreover, the selling was global and indiscriminate, with virtually no country or sector spared.

After two days of continuous, across-the-board selling, it’s natural to wonder if the dip is merely a pothole that will do little damage, or the beginning of a large sinkhole that sucks everything down -10% or more. Although you should know by now that we’re loath to make directional predictions on the stock market, we will admit that as of today, we remain firmly in the pothole camp.

It’s not at all clear why sellers have been so active recently, which itself is a good sign. True market-moving news is both significant and unexpected, and we have heard neither this week. It appears that the trigger (or excuse) for the selling was the release of the “flash” HSBC China manufacturing PMI (Purchasing Manager’s Index). This is modeled on an index originally developed in the US and represents a survey of purchasing managers in manufacturing companies, asking them whether conditions are improving or deteriorating. The data are aggregated to produce a number, where 50 represents “no change,” anything under 50 indicates contraction and anything above 50 means expansion.

The result came in at 49.6, slightly under 50 and a drop of 0.8 from November. The naïve takeaway is that manufacturing in China is now contracting, which can’t be good. But there are several reasons why this should not be market-moving information:

  1. It’s only one month of data, and we had 5 months over 50 preceding it.
  2. It’s a preliminary result, not based on the full survey, which comes later this month.
  3. The report came out yesterday, so why was the lion’s share of the decline today?
  4. It’s one of two different PMIs from China, and historically the less accurate one because it excludes the largest state-owned enterprises.
  5. All PMI surveys are heavily influenced by sentiment, as they are based on interviews with humans, not hard data. They can thus be depressed if the purchasing managers are in a negative mood for some reason.
  6. All data coming out of China have to be taken with a grain of salt.

So if the China PMI wasn’t the cause of the market rout, what was? One can only speculate, but it appears from trading data that it was mainly the short-term and high-frequency traders that sold, mostly through futures rather than actual stocks. Longer-term holders, including mutual funds, endowments, pension funds and even individuals mostly stood pat. This suggests that the “hot” money was simply taking bets on what might happen, not on new information, of which there was none.

You may have heard that the decline started in emerging markets, and was accompanied by a drop in many emerging market currencies. This is probably just a “risk off” effect: when traders become worried about the market, they sell their riskiest assets first. This is exactly what happened yesterday, but today, even stodgy stocks were hit hard. Selling begat selling, which shows that even professional traders can behave like sheep.

We’re not going to speculate on whether the selling is mostly finished or there is still more to come. But on a longer-term basis, we would like to point out that emerging markets have been struggling since the spring of 2011, and have dropped -23.8% in price since then. This is a bear market by definition, and one that has lasted nearly 3 years. It’s about time it ended, and perhaps this week’s rout, which started in just those markets, will mark a real turnaround in the emerging markets. If so, it can truly be called the “rout that refreshes.”

Adam

Dr. Ken Waltzer MD, MPH, AIF®, CFA, CFP®
Founder and President – Kenfield Capital Strategies (KCS)

Adam Bragman
Director of Business Development – Kenfield Capital Strategies (KCS)

Kenfield Capital Strategies℠ (KCS) is a registered investment adviser. Our services include discretionary management of individual and institutional investment accounts, along with comprehensive financial, estate and tax planning services.

Market Week: January 23, 2014

January 22nd, 2014

The Markets

Domestic indices were mixed last week. The Nasdaq and Russell 2000 ended with slight gains, the Dow was basically flat, and the S&P 500 wound up with a slight loss after briefly returning to the level at which it started the year. The benchmark 10-year Treasury yield also saw a little dip.

Market/Index

2013 Close

Prior Week

As of 1/17

Weekly Change

YTD Change

DJIA

16576.66

16437.05

16458.56

.13%

-.71%

Nasdaq

4176.59

4174.66

4197.58

.55%

.50%

S&P 500

1848.36

1842.37

1838.70

-.20%

-.52%

Russell 2000

1163.64

1164.53

1168.43

.33%

.41%

Global Dow

2484.10

2475.98

2487.32

.46%

.13%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.88%

2.84%

-4 bps

-20 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

· Slower auto sales didn’t prevent overall retail sales from rising 0.2% in December, according to the Commerce Department. Excluding the 1.8% decline in auto sales, retail sales were up 0.7%.

· Driven by increases in the cost of housing and energy, consumer prices rose 0.3% in December, putting the inflation rate for the last 12 months at 1.5%. The Bureau of Labor Statistics said wholesale inflation also was up in December; the 0.4% monthly increase put the annual rate at 1.2%. However, both remain well below the level that would raise concerns at the Federal Reserve Board.

· There was good news about manufacturing from the Federal Reserve. The Empire State index showed accelerating growth and hit its highest reading in more than a year (12.5), while the Philly Fed index went from 6.4 to 9.4 and has now shown growth for eight straight months. The Fed’s measure of industrial production also was positive. December’s 0.3% increase–the fifth straight month of gains–put industrial production 3.7% ahead of the previous December and 0.9% higher than its pre-recession high of December 2007.

· Housing starts froze in December, according to the Commerce Department. However, the nearly 10% decline for the month still left them 1.6% ahead of December 2012, and the 923,400 housing starts for all of 2013 represented the highest annual total since 2007. Building permits–an indicator of future activity–also fell by 3% during the month but were 4.6% higher than a year earlier.

· A federal appeals court voted to give providers of broadband internet services greater ability to charge content providers higher rates for faster service to their customers. The ruling overturned the FCC’s so-called “net neutrality” regulations, but left open the possibility that the FCC could regulate service in other ways–for example, by classifying broadband as a telecommunications service, which would put it in the same category as telephones.

· The Federal Reserve’s “beige book” reported continued moderate economic expansion in most districts.

Eye on the Week Ahead

With little fresh economic data available, investors may concentrate on the ongoing stream of earnings reports. The World Economic Forum at Davos also could produce some headlines.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

2014: Will the bull grow stronger or are we headed into bearish territory?

January 19th, 2014

As we discussed in 2013: Year in Review, the past year was kind to equity investors, particularly those invested in US stocks. 2013 was the best year for the S&P 500 since 1997, thanks to record corporate earnings, increased confidence among investors and consumers, and record low levels of debt obligations for Americans. Quantitative easing, on the other hand, is not (in our opinion) driving appreciation in the US stock market, no matter what you hear on CNBC or from your friends. But with the S&P 500 surging well past its pre-recession high of 1,560, people are wondering: Is this just a cyclical bull market within a secular bear market that has yet to end, or are we now in the early stages of a long, secular bull market?

Beginning of a bull or a bubble waiting to burst?

secular market cycle occurs over a longish period of time, typically 10 to 30 years. From late 1998 to early 2009 we were in a secular bear market for stocks, just as we were in a secular bull market from late 1982 to early 2000. Cyclical market cycles are shorter, typically 3 to 7 years, and occur within secular market cycles. For example, within the most recent secular bear market was an undeniable cyclical bull market from 2003-2007. Back then people speculated that we were already starting a new secular bull market, after stocks rose from the ashes of the dot-com collapse and the fall of Enron. But once housing prices and the credit markets went down the tubes, it became clear that bearish days lay ahead.

To many investors, the past 4 years feels like 2003-2007 all over again—a cyclical bull market head fake within a secular bear market that has yet to end. Some people are waiting for the next “bubble” to burst while others think the stock market is being “artificially” inflated by QE dollars and will deflate when the Fed finishes tapering. There are some who believe that rampant inflation will debase our currency and punish stock investors, and of course there are those who argue that the market is “due” for a major drop after four years of strong returns.

While the “doom and gloomers” shout ever louder even as their ranks dwindle, more investors are starting to believe that we are in the early years of a long, secular bull market. While we neither agree nor disagree with this assessment, as we prefer to avoid predicting the future, we do think there are some compelling arguments to be made for the secular bull case. One of the strongest is the flow of money into and out of mutual funds, which is a good proxy for how individual investors (the “dumb” money) are allocating their funds.

Typically, non-professional investors “chase performance,” buying what has recently done well and selling the underperformers. Because investment performance tends to “revert to the mean” (meaning both over- and underperformance tend to average out over time), these amateurs end up buying high and selling low. Thus, doing the opposite can often be a lucrative strategy.

True to form, individual investors have recently been shooting themselves in the foot. According to TrimTabs, which follows money flows, investors moved $1.2 trillion into bond funds from late 2006 through the end of 2012, while simultaneously taking $600 billion out of equity funds over the same period. While bond investors initially did well, they finally got creamed in 2013 as interest rates rose sharply. As it will probably turn out in retrospect, last year was the end of the longest secular bond bull market in history, one that began in 1982 and lasted nearly 31 years. Not surprisingly, individual investors jumped most heavily into bonds during the final 20% of this great bull market.

If 2009 represented the start of a new secular bull market for stocks, individual investors are behaving as expected. It wasn’t until last year that amateurs started buying stocks and selling bonds, 4 years after the S&P 500 bottomed and subsequently rose +150%. But it was a trickle rather than a deluge: in 2013, investors bought about $352 billion of equity mutual funds (and ETFs) while selling about $86 billion of bond funds. That $86 billion represents only 7% of the amount that flowed into bonds over the past 6 years, while the $352 billion in stock purchases only puts these investors halfway back to where they were in 2006.

After watching their beloved bonds return +25% during the same 4 years that stocks grew +150%, and lose -2% in 2013 while US stocks gained +32%, the “Great Rotation” from bonds into stocks may finally have begun. Demand from funds shifting from bonds into stocks—along with money moving from low-yielding bank deposits (which alone have grown about $3 trillion in the past 5 years) into riskier investments—could continue to propel the stock market for many years to come. In addition, as the economy continues to improve, investors will be earning ever more cash that will eventually need to find a home, with stocks continuing to gain favor over bonds.

Keep expecting the unexpected

We can speculate on the future of the stock market and the economy all we want, and the truth is that no single indicator or event is going to determine what happens from here. It will be a seriesof events that shape the future, some of which are not only unknown but also unforeseeable. There will probably be more natural disasters and foreign debt problems over the next decade of two, just as there will be more earnings surprises in both directions that will move stock prices.

We will continue to monitor the events of 2014 keep you posted on the most important ones as they transpire, and we hope you’ll direct any questions, comments or suggestions our way so we can continue delivering information that is of value to you as you make important financial decisions.

Until next week,

Adam

Dr. Ken Waltzer MD, MPH, AIF®, CFA, CFP®
Founder and President – Kenfield Capital Strategies (KCS)

Adam Bragman
Director of Business Development – Kenfield Capital Strategies (KCS)

Market Week: January 14, 2014

January 14th, 2014

The Markets

Believers in the so-called January indicator–the concept that the first five trading days suggest the stock market’s overall direction for the rest of the year–were likely discouraged last week. The S&P gave up roughly half a percentage point during 2014’s first five trading days. The other three domestic indices also slipped during those five days, with losses ranging from the Nasdaq’s quarter of a percentage point to the Dow’s nearly seven-tenths of a percent. A rebound at week’s end gave three of the four domestic indices a gain for the week. However, the small-cap Russell 2000 was the only one to see a slight gain for both the week and the year so far. Meanwhile, the yield on the benchmark 10-year Treasury fell as the new year saw a new interest in bonds.

Market/Index

2013 Close

Prior Week

As of 1/10

Weekly Change

YTD Change

DJIA

16576.66

16469.99

16437.05

-.20%

-.84%

Nasdaq

4176.59

4131.91

4174.66

1.03%

-.05%

S&P 500

1848.36

1831.37

1842.37

.60%

-.32%

Russell 2000

1163.64

1156.09

1164.53

.73%

.08%

Global Dow

2484.10

2458.75

2475.98

.70%

-.33%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

3.01%

2.88%

-13 bps

-16 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

· Only 74,000 new jobs were added to U.S. payrolls in December; that’s the lowest number since January 2011, according to the Bureau of Labor Statistics. However, the unemployment rate fell from 7% to 6.7%, largely because of people dropping out of the workforce.

· Minutes of the meeting at which the Federal Reserve’s monetary policy committee decided to begin scaling back its bond purchases emphasized once again that tapering will be done gradually and will depend on economic data. Members also forecast stronger economic growth in coming years and a gradually declining unemployment rate.

· The Senate made it official that Janet Yellen will oversee the Fed’s tapering efforts. Members confirmed her appointment as the first woman to chair the Federal Reserve Board. She will take over when Ben Bernanke steps down January 31.

· Record exports helped cut the U.S. trade deficit to $34.3 billion in November. According to the Bureau of Economic Analysis, that was the lowest level since September 2009.

· Orders placed with U.S. factories in November surged 1.8% for the month, putting them at their highest level since the Commerce Department began tracking the figures in 1992. Inventories, which have risen 11 of the last 12 months, were partly responsible, but new orders for durable goods, particularly transportation equipment, also have risen 3 of the last 4 months and were up 3.4% in November.

· Growth in U.S. service industries slowed slightly in December as the Institute for Supply Management’s gauge fell almost 1% to 53% during the month. The ISM survey also showed new orders falling to 49.4% in December, which represents actual contraction.

Eye on the Week Ahead

The Q4 2013 earnings season will get into high gear as several major financial and tech companies release reports. Data on retail sales for the holiday season will shed light on the state of consumers’ wallets.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Westside Investment Management, LLC

[email protected]
www.westsideim.com

Quantitative Easing and Tapering are overrated

January 12th, 2014

A quick review of Quantitative Easing

November 2008:  Federal Reserve begins buying $600 billion worth of mortgage-backed securities on the open market to stimulate the economy.

November 2010: Fed begins buying $600 billion of Treasury securities, a process that became known as “QE2.”

September 2012: Fed announces plans to purchase $40 billion of mortgage-backed securities per month on the open market, a process that became known as “QE3” (or sometimes “QE-Infinity” because it has no definite end).

December 2012: Fed increases its purchases from $40 billion to $85 billion per month by adding $45 billion per month of US Treasury purchases.

June 2013: Ben Bernanke mentions “tapering” of the Fed’s QE program contingent upon positive economic data; he indicates that the Fed could scale back bond purchases at some point and suggests that the program could wrap up my mid-2014. Bernanke also suggested the Fed may start raising rates at some much later date and that the Fed’s target rates of 2% for inflation and 6.5% for unemployment would be key measures in this latter decision.

The Myth of QE

Myth: Quantitative easing (QE) is responsible for most of the post-recession growth in the stock market and the US economy since 2008. By introducing trillions of new dollars into the economy, the Federal Reserve is “printing” money, and once this artificial injection of capital (aka “life support”) stops, the US economy will be seriously crippled.

While many analysts, journalists and others in the investment world who are paid to have an opinion would certainly agree with the above statement, we strongly disagree with it and would like to debunk this myth. Because the Fed is buying bonds on the open market, the sellers of these bonds (the parties who receive cash from the sale) are mostly banks and other large financial institutions, in large part because of the sheer volume involved. Thus, the first question that needs answering is: Where is all this cash going?

A bank can do one of three things with cash: (1) make loans, (2) buy securities, (3) park the money at the Federal Reserve (in the form of “excess reserves”) where it earns 0.25% annual interest. Option 2, using the cash to buy securities, seems highly unlikely as the cash just received was from sellingsecurities, leaving options #1 and #3 as possibilities.

Back when QE first started, the Fed may have hoped that banks would use the cash received from selling their bonds towards lending, but this didn’t turn out as planned. The graph below, which shows the amounts of different types of loans made by large US commercial banks, illustrates that lending has barely increased since the Great Recession (shaded in gray) ended. Thus, it looks as if option #1 wasn’t utilized, either, suggesting that most of the cash generated from selling bonds to the Fed went straight back to the Federal Reserve in the form of “excess banking reserves.”

The following graph shows the growth of various types of assets on the Fed’s balance sheet—securities held (Treasuries, mortgage-backed and agency) and bank reserves (the purple line). As you can see, bank reserves shot up immediately after QE1 was launched, and their growth has continued right up through today.

Why is the Fed still doing quantitative easing if the money isn’t going into the economy?

We can think of a few reasons, each of which may be having some effect. First, by holding bonds on its balance sheet, the Fed is reducing the federal deficit: the Federal Reserve receives interest payments on these bonds from the US Treasury, and then sends the interest right back to the Treasury each quarter. Second, banks’ balance sheets are healthier because the additional excess reserves improve their capital ratios as required by regulators.

There’s also the supply-demand argument that says that the additional demand for mortgage-backed and Treasury securities coming from the Fed’s regular purchases has reduced long-term interest rates. This may have been true for a while, but the rapid spike in rates that occurred right after Bernanke whispered the word “taper” indicates that changes in investor demand can rapidly overwhelm $85 billion a month in Fed purchases.

Perhaps the most important justification for QE is psychological. With the support of the Federal Reserve, investors seem to have greater faith in the economy and the stock market, as evidenced by the market’s positive reactions over the past few years to news of additional or continued bond buying and the opposite response to announcements that QE will be scaled back. These knee-jerk reactions to changes in QE should gradually abate as it becomes clear to investors that neither the economy nor the stock market required resuscitation from the Federal Reserve. They will eventually understand (as do you after reading this) that the math is simply not there to support the assertion that QE has been responsible for much of the country’s post-recession growth. That growth came, and will continue to come, from improving individual and corporate balance sheets, increasing consumer, business and investor confidence, and of course, the relentless march of technology.

We at KCS don’t fear the end of QE, and neither should you.

Wishing everyone a happy (and profitable) 2014!

Adam

Dr. Ken Waltzer MD, MPH, AIF®, CFA, CFP®
Founder and President – Kenfield Capital Strategies (KCS)

Adam Bragman
Director of Business Development – Kenfield Capital Strategies (KCS)

Market Week: January 8, 2014

January 7th, 2014

The Markets

Equities rang in the new year by taking a bit of a breather. As investors decided to take some of the profits that the Santa Claus rally had left in their stockings, the Dow lost 135 points on 2014’s first trading day, though it regained much of that the following day. The other three domestic indices fared slightly worse, though not as badly as the Global Dow. Meanwhile, gold showed signs of new life after its disastrous 2013, jumping nearly 3% in the first two days of the year.

Market/Index

2013 Close

Prior Week

As of 1/3

Weekly Change

YTD Change

DJIA

16576.66

16478.41

16469.99

-.05%

-.64%

Nasdaq

4176.59

4156.59

4131.91

-.59%

-1.07%

S&P 500

1848.36

1841.40

1831.37

-.54%

-.92%

Russell 2000

1163.64

1161.09

1156.09

-.43%

-.65%

Global Dow

2484.10

2476.65

2458.75

-.72%

-1.02%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

3.02%

3.01%

-1 bps

-3 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

· Home prices rose 0.2% in October, putting them 13.6% higher than 12 months earlier. The year-over-year gain in the S&P/Case-Shiller 20-City Composite Index was the strongest since February 2006, and October’s monthly increase represents the 17th straight month of gains. However, S&P warned that the monthly increases were showing signs of slowing.

· Construction spending was up 1% in November, according to the Commerce Department, and was almost 6% higher than the previous November. Strength in both residential and nonresidential private construction fueled the growth as spending on public works projects fell 1.8% during the month.

Eye on the Week Ahead

Last week’s light trading volumes should be back to normal this week, and those who believe that the first five trading days of January indicate something about equities’ subsequent direction during the coming year will have a better basis for making that assessment. Friday’s jobs numbers will be of interest, as always, as will the minutes of the meeting at which the Fed’s monetary policy committee decided to start tapering.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.