May 1, 2012

Apple

What is the costliest fruit?

How about an apple, as in Apple, Inc.? With more than $500 billion in market capitalization, Apple is the world's most valuable company, according to Reuters. Last week, the company reported quarterly earnings that easily trumped analyst forecasts and this helped propel the S&P 500 to a 1.8 percent weekly gain. But it's not just Apple that's doing well. According to FactSet, a robust 78 percent of the S&P 500 companies that have reported earnings so far this quarter have beaten analysts' forecasts.

Last week's gains came despite some disappointing economic news which included the following:

  • A weaker than expected reading on U.S. gross domestic product (GDP), the broadest measure of all goods and services produced in our country.
  • A downgrade of Spain's government debt-perhaps not surprising since the country now has a debilitating unemployment rate of 24.4 percent.
  • A second consecutive quarter of negative economic growth in the U.K., indicating they have slid back into recession. Sources: The Wall Street Journal, Yahoo! Finance, Bloomberg

Overall, the economy continues to chug along at a modest pace. Not quite fast enough to signal "all clear" and not quite slow enough to signal "recession ahead."

Data as of 4/27/12 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.8% 11.6% 2.9% 17.9% -1.3% 2.8%
DJ Global ex US (Foreign Stocks) 0.5 8.9 -14.0 12.4 -5.0 5.1
10-year Treasury Note (Yield Only) 1.9 N/A 3.4 2.9 4.7 5.1
Gold (per ounce) 1.3 5.7 10.1 22.4 19.7 18.3
DJ-UBS Commodity Index 1.8 0.0 -18.8 9.0 -4.1 3.6
DJ Equity All REIT TR Index 1.7 12.9 8.9 33.0 0.0 10.7

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

The State of the Housing Market

THE HOUSING MARKET STILL HAS THE BLUES, according to a widely followed barometer of home prices in the U.S. The S&P/Case-Shiller Index is designed to show how home prices are performing in the twenty largest cities and last week's report showed the index is at its lowest point since October 2002.

Since the peak of the index in 2007 through February of this year, home prices have lost one-third of their value-and that's even with record low interest rates on mortgages. Unfortunately, tough employment conditions have kept many potential homeowners on the sidelines. Adding to that, obtaining a loan from a bank remains difficult without very good credit.

Even though home prices continue to decline, a silver lining might be emerging. According to the National Association of Realtors, an index that measures the number of agreements signed to buy previously owned homes rose in March to its highest level in two years.

The increase in interested home buyers is coming at a time when supply is declining. Inventory levels in many markets are at their lowest level in years. For example, according to The Wall Street Journal, at the current pace of sales, it would take only 1.5 months to sell all the homes in Sacramento, CA. Considering pickings are pretty slim, home builders have also benefitted. New home sales in the U.S. are up 16 percent so far this year.

Unfortunately, this recent decline in available homes for sale may prove to be temporary because Fannie Mae, Freddie Mac and other banks have been slow to list for sale hundreds of thousands of foreclosed homes. In fact, banks and other investors are believed to hold 450,000 foreclosed homes while an additional 2 million are currently in the process of being foreclosed.

Ultimately, the solution to the housing blues may be strong economic growth. And as last week's GDP numbers show, that strong growth hasn't started yet.

Weekly Focus - Think About It

"In order to get a loan you must first prove you don't need it."

—Murphy's Law

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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  • The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
  • The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
  • The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
  • Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
  • The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
  • The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
  • This newsletter was prepared by Peak Advisor Alliance.
  • Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
  • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
  • Past performance does not guarantee future results.
  • You cannot invest directly in an index.
  • Consult your financial professional before making any investment decision.

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