Showing posts with label dentists advisors. Show all posts
Showing posts with label dentists advisors. Show all posts

Tuesday

Third Quarter Market Review from NDA Member Rick Epple, Financial Advisor for Dentists

I guess, like myself, dentists also every quarter find ourselves saying the same thing about the market: what a difference a quarter makes! In the first two months of 2012, the U.S. stock market was recording excitingly positive returns. The U.S. economy seemed to be back on track and there was talk that the Eurocrisis was finally behind us. Even the pullback in March left the markets in positive territory.

Then came a rough second quarter where the market indices fell across the board, nearly wiping out the first quarter gains. Now, in the last three months, while many close watching investors, whether dentists or otherwise, were still anxious about Europe, deficits, paralysis in Washington and unemployment, the markets have delivered an unexpected gift: a steady, gradual rise in stock prices that seemed, week by week, contrary to the mood expressed in the financial press.

Here at the end of the third quarter, entering the home stretch for the year, the returns on many of the broad stock indices are, surprisingly, well into double-digit territory. Market historians will look back on the past three months as a bullish quarter, and probably conclude that investors in the first three quarters of 2012 must have been feeling ebullient bordering on giddy.

Overall, the Wilshire 5000–the broadest measure of U.S. stocks and bonds–was up 6.15% for the third quarter, and is returning a robust 15.85% so far this year. The comparable Russell 3000 index rose 6.23% during the third quarter, and is now up 16.13% for the year.

The other stock market sectors moved in a very similar pattern. Large cap stocks, represented by the Wilshire U.S. Large Cap index, were up 6.25% for the quarter, and now stand at a 15.97% overall gain so far in 2012. The Russell 1000 large-cap index gained 6.31% for the third quarter, putting it up 16.28% for the first nine months of the year. The widely-quoted SandP 500 index of large company stocks gained 5.76% in the same time period, and is up 14.56% so far this year.

The Wilshire U.S. Mid-Cap index index rose 5.59% in the three months ending September 30, up 11.86% for the year. The Russell midcap index was also up 5.59% in the recent quarter, with a 14.00% gain so far this year.


Small company stocks have posted returns nearly identical to the large multinationals. The Wilshire U.S. Small-Cap gained 5.16% in the third quarter, up 15.19% in the first nine months of 2012. The Russell 2000 small-cap index gained 5.25% in the three months ending September 30, and has returned 14.23% for the year so far. The technology-heavy Nasdaq Composite Index was up 6.17% in the third quarter, up 19.62% year to date. Twelve years after the “tech wreck” disaster in this sector, tech stocks appear to be market leaders again.

The next time you read gloomy headlines about the economy, remember that every single industry sector in the SandP 500 is posting gains so far this year, led by telecommunication stocks (up 21.04%), information technology (up 20.64%), consumer discretionary goods manufacturers (up 19.99%), and financial stocks (19.88% gains so far this year).

Global stocks have not been as robust as American shares, but they, too, are in positive territory. The broad-based EAFE index of developed economies rose 6.14% for the third quarter, and is now in firmly positive territory, with a gain of 6.95% so far this year. For the first time this year, European stocks are showing gains for their investors, in dollar terms, up 8.13% for the recent quarter, now up 8.00% for the year.

The EAFE Emerging Markets index of lesser-developed economies rose 6.97% in the third quarter, and is now up 9.41% for the year. Interestingly, the highest returns of any global index came from emerging African nations (minus Zimbabwe, which is one of the ways that EAFE calculates its indices), which are up an aggregate 34.70% so far this year. Second place goes to an index made up of the Jordanian, Egyptian and Moroccan stock markets, up 32.81% in the first three quarters of 2012.

Commodities have also moved into positive territory, with the SandP GSCI index rising 11.54% for the quarter, now up 3.47% this year. Energy and petroleum prices are up very modestly (0.55% and 0.93% on the year respectively); the biggest mover is agriculture (up 18.44% so far this year), with grain prices rising 31.05% due to the Midwestern drought.

On the bond side, those of us who could not imagine how U.S. Treasuries could possibly offer lower yields are watching it happen. The 12-month T-Bonds are now yielding just 0.15%, as investors seem to be happy to essentially lend the government money with a promise that they will get it back again 12 months later.

A dentist like you, locking up your money for three years would get 0.31% a year. Ten-year issues yield 1.63%, and 30-year Treasuries bring a 2.82% annual coupon yield. Muni bonds are also down from where they were last quarter, with aggregate yields of 0.203% (1-year), 0.286% (2-year), 0.624% (5-year) and 1.742% (10-year). The aggregate of all AAA corporate bonds is yielding 0.76% for bonds with a five-year maturity.

Dentists, Ask Rick Epple to Develop Your Solution

 Is there an explanation for this three-month bull market during what can only be described as trying economic times? People who have long experience with the investment markets are fond of saying that rallies “climb a wall of worry;” that is, the markets go up most steadily when it requires courage to buy into them. These past three months seem to be one of the best examples of this adage that you are likely to see. Today, it requires a certain degree of courage to believe in the long-term future of the economy and the long-term return on investments, and yet the market rise is evidence that many investors are finding that courage amid the discouraging headlines.

Some economists think that the stock rally was a gift from the central banks. For months, it was rumored that the U.S. Federal Reserve Board would engineer another stimulus package, which had already been dubbed “QE3″–and indeed Fed Chairman Ben Bernanke announced that the Fed would inject $40 billion a month into the market for securitized home mortgages, adding to the money supply, possibly driving down mortgage rates and (again possibly) stimulating the housing and homebuilding sectors of the economy into hiring again.

Meanwhile, the European Central Bank has finally announced that it would do what economists were calling for three years ago: purchase Eurozone government bonds to reduce the borrowing costs of countries that are restructuring their finances–notably Spain and Italy. After two press conferences on different sides of the Atlantic, some of our worst-case economic scenarios (a 2008-like collapse of the Eurozone banking system; a U.S. recession) seem to have become less likely to occur.

The U.S. economy is certainly not in danger of breaking any speed records as it continues to climb out of the Great Recession; in the last week of September, the government announced that from April through June, GDP grew just 1.3%. Economists remain wary of the “fiscal cliff”–the simultaneous expiration of lower tax rates and automatic federal budget cuts–that will take place, absent Congressional intervention, at the stroke of midnight, December 31. Add in the discouraging 8.1% unemployment rate, and there is plenty of reason not to be bullish on stocks for the last three months of the year.

But of course that was also true before stocks went up the past three months. Optimists can point to 96,000 new jobs added in August, and the fact that long-term, the unemployment rate has been trending downward from around 10% at this time three years ago. A Bloomberg News survey recently forecast that the U.S. economy will grow 2.1% over the next three months, and the forecasts from the Federal Reserve Board anticipate 2.5% to 3% GDP growth in 2013. At the upper end of that estimate, we are talking about a return to economic normalcy, and a chance to chip away at the jobless rate.

Who knows who’s right? All we know for sure is that the global economy is in a slow-growth recovery, with little indication that growth will accelerate dramatically or that the U.S. will slide back into recession. Buying stocks today is a bet that the hard work of millions of people still employed will produce positive results over the long term, which will ultimately reward the owners who hold their shares.

For as long as the markets have existed, having my dentist clients stay invested has been a good long-term strategy–and in the face of so much short-term uncertainty, this is about all we have to go on.


About Rick Epple CFP® My focus as a Certified Financial Planner is to help business owners reach their personal and financial goals, and this blog will provide objective information on a wide variety of related topics, from goal setting to estate planning. Also Northern Dental Alliance co-founding member consultant.

Original Article posted here.
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 Blog entry reposted by

Dick Chwalek, NicheDental.com

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MN Dentists Financial Advisor Provides 2nd Quarter Markets Recap

Q2, 2012 Markets Review
The Right Answers: Know How and No Spin.  A Fee-Only Financial Planner
Posted on July 3, 2012 by

For dentists and others watching the investment markets, the first half of 2012 was a strange and somewhat harrowing experience.  The first four months of the year saw American stocks zoom upward by almost 10 percentage points, building on one of the best January performances in history.

Then came May, when the Wilshire 5000–the broadest index of U.S. stocks–gave back 6.22% of its value.  June was a muddle–until the final day of the month, when The Wilshire 5000 gained back 2.53% in a single trading day and essentially saved the quarter from being considered a total disaster.  On the same day, the S&P 500 gained 2.49% and the Nasdaq exchange was up 3.00%.

If there is a lesson here–and the markets are always teaching us new ones–it is that the drops, and the rises, take us by surprise, and are almost impossible to predict.

Let’s take stock of the past quarter, and look at where we are after the first half of 2012.  Overall, the Wilshire 5000 fell 3.13% for the second quarter, but it’s still up 9.22% for the year.  The comparable Russell 3000 index fell 3.15% during the second quarter, but rose 3.92% in June, and is up 9.32% for the year.

The other stock market sectors moved in a very similar pattern.  Large cap stocks, represented by the Wilshire U.S. Large Cap index, fell 3.11% for the quarter, but are posting a 9.15% overall gain in the first half of 2012.  The Russell 1000 large-cap index fell 3.12% for the second quarter, but is up 9.38% for the first half of the year.  The widely-quoted S&P 500 lost 3.29% in the same time period, but is up 8.31% this year.

The Wilshire U.S. Mid-Cap index was the biggest quarterly loser, down 5.71% in the second three months of the year, but it, too, has posted an overall gain so far this year, at 5.93%.  The Russell midcap index dropped 4.40% in the recent quarter, but is up 7.97% so far this year.

The Wilshire U.S. Small-Cap index dropped 3.33% in the three months ending June 30, but ended the first half up 9.54%.  The Russell 2000 small-cap index lost 3.47% in the three months ending January 30, but is up 8.53% for the first six months of 2012.  The technology-heavy Nasdaq Composite Index lost 5.06% in the second quarter, but was up 3.81% in June, and has a 12.66% gain for the year.

Although energy stocks are down 3.37% for the year, as a result of falling oil prices, other sectors are posting significant gains.  Telecommunication services stocks are up 13.34% for the year, while information technology stocks have posted a 12.71% gain, even though they fell 6.96% during the second quarter.  Financial stocks are up 12.63% and Consumer Discretionary stocks have gained 12.06%.

Internationally, the broad-based EAFE index of developed economies fell 8.37% for the quarter despite a 6.79% gain in the past month.  For the year, the index is up a scant 0.77%.  Not surprisingly, the weakest component is EAFE’s Europe index, down 9.11% for the second quarter, down 0.12% so far this year.

The EAFE Emerging Markets index of lesser-developed economies fell 10.00% in the second quarter, but is up 2.29% for the year.  The bloodiest quarter was experienced by the Eastern European EM countries, down 15.03% in the three months ending June 30, but still up 0.38% for the year.

Commodities are generally down for the year, with the S and P GSCI index falling 12.38% in the second quarter, down 7.23% so far this year.  The hardest-hit: energy (mostly oil) down 17.05% for the quarter, down 10.98% so far in 2012.

On the bond side, U.S. Treasuries remained at rock-bottom yields.  The 12-month T-Bond yields just 0.20%.  Locking up your money for three years gets you 0.39% a year.  Ten-year issues yield 1.64%, and 30-year Treasuries bring a 2.75% annual coupon yield.  Muni bonds are even lower, with yields of 0.211% (1-year), 0.343% (2-year), 0.808% (5-year) and 1.922% (10-year), while the aggregate of all AAA corporate bonds is yielding 1.14% for bonds with a five-year maturity.

It is worth looking at what led to the sudden jump in investor enthusiasm for stocks on the very last day of the quarter, and see whether we should be feeling the same exuberance as the general public.  The market jumped on preliminary news that a late night round of negotiations among the Eurozone leaders had led to a “breakthrough” (as the news reports called it).

Over the weekend following these news reports, we have learned more details: the European leaders have decided that instead of lending more money to the Spanish government, and possibly eroding its already shaky creditor status, they will inject bailout funds directly into Spanish banks.  In addition, the leaders agreed to use the bailout funds set aside in the European Financial Stability Facility and the European Central Bank “in a more flexible manner” in order to stabilize the Eurozone markets.  Finally, the leaders announced plans to create a 120 billion euro fund to stimulate growth across Europe and create jobs.

All of these moves represent at least a quarter-degree turn from previous policies.  Giving money directly to the Spanish banking system avoids a negative feedback loop where lending to the government simply burdens it with more debt and causes investors to demand cripplingly high interest rates on Spanish government bonds.

Making the bailout funds more flexible seems to be a concession by German government leaders, who wanted any bailouts to be accompanied by austerity measures in the receiving country, which has, so far, weakened every economy that agreed to it.  The growth funds seem to be a step in the same direction, away from austerity toward promoting growth and employment–which avoids the negative feedback loop of austerity causing economic hardship, leading to declines in GDP, leading to lower tax revenues, leading to deeper fiscal deficits, which is what the bailouts were intended to alleviate.

However, as dentists and other investors read the fine print, they will notice that the newly-flexible bailout funds amount to about 500 billion euros, compared with roughly $2 trillion in potentially distressed government debt.  It is possible that some of the enthusiasm generated on the last day of the first quarter will have evaporated within the week, following a well-worn path of enthusiasm followed by panic that investors who are paying attention will have already grown tired of.

Meanwhile, there is some cause for concern in the U.S. economy, which has recently seen the kind of good news that should be put into better perspective.  The number of Americans filing for first-time unemployment benefits fell to 386,000 for the week ending June 23, down from 392,000 the previous week.

But the four-week average fell by just 750, meaning that if you look past the headlines, an economist would have trouble discerning a trend in the data.  Similarly, home prices in the 20 largest U.S. cities rose 1.3% in value in April, based on the S&P/Case-Shiller Home Price indices.  But this, too, calls for some perspective: the rise only brings home prices to levels seen in early 2003.

Is there a pattern here?  Investors have been led to believe that the global situation, and the U.S. economic trends, were worse than an objective view might indicate, and then, in one day, they were suddenly seeing unexpected positive news that may have been overhyped.

The truth is that Europe is still working its way out of a crisis, and many analysts are still predicting a recession in the Eurozone this year.  The U.S. has been on a slow recovery path, and it is not easy to predict its progress beyond feeling grateful that the situation is not as dire as we see in Greece, or as unsettling as what we’re seeing in Spain.

The most truthful thing one can say is that these sharp turns in the market–in May, on the last day of June–are not driven by any change in the intrinsic value of stocks, or any interruption in the actions of millions of workers who are daily building stronger, more profitable franchises throughout the global economy.  The lurches of the roller coaster represent emotional responses by skittish investors who want to jump into or out of the markets based on headlines that usually seem to overstate the case on the upside and the downside.

So far, 2012 has been a very bumpy ride, and has certainly been scary at times.  But from a real investor’s point of view - whether dentist or not -  behind all the sturm and drang, the first half of the year has seen unusually positive growth in the markets.  We cannot predict what the second half will bring, any more than we can predict what the weather will be at a certain date in October or December.

Dentists should remain steadily invested and pay as little attention as possible to the shrill voices of our increasingly frantic news outlets has been a solid strategy so far this year, and has generally worked out well for investors over time.

2012′s second half will undoubtedly bring us more surprises.  It will force us to remember that we are not investing in current events, but in the far more boring, far more significant daily work and effort of the people who get up each morning and contribute to the growth of our global economy and the growth of the businesses they work for–the companies that we, together, are invested in.


Original Financial Advisor's Article Posted here.


About Rick Epple CFP®

My focus as a Certified Financial Planner is to help business owners reach their personal and financial goals, and this blog will provide objective information on a wide variety of related topics, from goal setting to estate planning.

Rick is also a co-founder and member of the Northern Dental Alliance.

Watch Rick's Financial Planning video.
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