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History Lesson: November Good for Dow
November 03, 2009
What happens in markets in the first 10 months of the year can shed light on what might happen in November and December.
The statistic-minded folks at Bespoke Investment Group crunched some numbers going back more than a century and came up with this interesting tidbit – when the Dow Jones Industrial Average is up 10 percent or more through October, the next two months have yielded positive Dow returns 87 percent of the time.
2009 marks the 47th time since 1901 that the Dow has topped 10 percent through October. When that occurs, Bespoke says, there has been an average Dow gain of 4.2 percent and a median gain of 3.6 percent through the end of the year.
Here’s another factoid – regardless of performance through October, the Dow has averaged a 65-basis-point gain in November over the past century. The results are better over the past 50 years and 20 years – monthly gains of 1.21 percent and 1.79 percent, respectively.
You can see in the yellow bar on the chart above that November is the second-best month for the Dow (trailing only April) over the past 20 years, and the reddish bar shows that November and December are two of the best months over the past 50 years.
There are, of course, no assurances, that this year will follow the strong November-December historical trend. In 2007, for instance, the Dow dropped nearly 5 percent in the last two months of the year as the U.S. and other countries slipped into recession.
But for what it’s worth, Bespoke says all of the other five November-Decembers with negative Dow performance came before the end of World War II (1912, 1918, 1919, 1925 and 1943).
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. #09-772
Time for New Stock Market Leadership?
October 26, 2009
This analysis is from John Derrick, U.S. Global Investors Director of Research.
The market has rallied dramatically since the March 9 low, with the biggest beneficiary of this rally being low-quality companies.
This intuitively makes sense, given that companies with the most troubled outlooks are the ones most likely to have a strong recovery when the dire outcomes predicted at the bottom of the crisis failed to transpire.
Quality may have different meanings to different investors, but in a recent research piece, Citigroup ranked performance based on multiple definitions of quality. S&P earnings quality ranking, debt-to-capitalization ratio and return on equity were used as proxies for quality. The research universe was the small-cap Russell 2000 Index, but I believe broader market conclusions can be drawn as well.
Based on S&P earnings quality rankings, companies with C or D (the two lowest categories) ratings returned about 55 percent over the past six months, while the highest-rated stocks returned about 11 percent. As a whole, the Russell 2000 universe returned 30 percent over that time period.
This trend is also broadly true for the other measures of quality. Generally speaking, companies with higher debt burdens outperformed companies carrying low debt, and companies with negative return on equity outperformed the broader market as well as the companies with the highest return on equity.
Morgan Stanley also recently released a research report that looked at low-priced stocks as a proxy for low-quality and found that S&P 500 stocks trading below $5 dramatically outperformed. The same analysis was conducted on the MSCI Europe Index with very similar results, indicating a broad-based global phenomenon.
Morgan Stanley highlighted that the recovery so far has been driven by multiple expansion – the valuation that investors are willing to pay has increased, but that has not been supported by an increase in earnings in the current period. But we are now potentially at an inflection point at which the junk rally has more or less run its course and the market is beginning to focus on earnings growth.
The business cycle plays a significant role in market valuations in the sense that the market anticipates a recovery and pays up for the anticipated earnings stream. Once the recovery takes hold, however, investors focus on actual earnings power as the primary driver of valuations.
One persuasive indicator that the recovery has indeed taken hold can be seen in the ISM Manufacturing Index, which moved above 50 about six weeks ago, indicating that the economy is expanding.
What has worked so far in this stock market recovery will not likely carry us into 2010 and beyond, so the time could be right to reposition for the next leg of the recovery.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of September 2002, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states. #09-734
Collecting Relics from the Recession
October 07, 2009
Everyone has his own story to tell about the impact of the Great Recession, and the Museum of American Finance wants to use the power of social media to catalog them all.
The museum has set up Recessipedia, a Wikipedia-like site that allows users to write about how the financial crisis and global recession has affected them.
The idea is to gather stories and piece together a comprehensive view of the recession, much in the same way that a natural history museum would collect bones and pottery shards to flesh out the history of a bygone civilization.
One of the first Recessipedia contributors, NINJA Dad (the acronym means No Income, No Job or Assets), wrote about his daughter, an unemployed recent college grad who in 2006 bought a $250,000 house with a no-money-down subprime mortgage.
“She hasn't defaulted ... yet ... but periodically she calls crying her eyes out,” wrote NINJA Dad, who identified himself as a finance executive. “If she defaults, I wonder if she will ever be able to obtain a mortgage again, although her only mistake was to believe the hype about housing prices always going up.”
It’s hard not to feel bad for an individual caught in this situation, but this testimonial sheds some light on irresponsible borrowing decisions that helped inflate the real-estate bubble. Not all of the blame can be heaped onto the lenders. NINJA Dad himself wondered why his jobless daughter didn’t rent instead.
There was also excessive borrowing against home equity that saddled homeowners with crushing amounts of debt when home prices dropped. A University of Chicago study estimates that homeowners borrowed up to 30 cents for every dollar increase in home values during the peak bubble years.
Recessipedia provides an outlet for people to write about their personal experiences, and more stories like NINJA Dad’s may lead to a more inclusive view of what led up to the recession and why it has been so severe.
By clicking the links in this article, you will be redirected to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-706
History’s Greatest Money Printer
September 30, 2009
This analysis from Dr. Marc Faber is adapted from our exclusive webcast Global Investing Outlook, which originally aired in early September. Dr. Faber, based in Hong Kong, is a prominent international investor and a member of the influential Barron’s Roundtable.
I would argue that the weaker the economy is, the more fiscal stimulus will be applied and the more money printing will take place under Fed Chairman Mr. Bernanke, who is history’s greatest money printer.
As a government, you can print money, increase your debt and put everything on the government’s balance sheet, but it is unlikely to help the typical household in the United States. It may help Wall Street and it may help some asset markets, but not the American standard of living.
If money printing would make countries rich, Zimbabwe would be the richest country in the world.
If you pursue a monetary policy aimed at driving down and keeping interest rates at zero and pushing people into assets, then you can essentially have a weak dollar but have stocks catch up and compensate for that weak dollar.
Going forward, I think there’s a chance that equity prices around the world continue to rally and could rally quite substantially if the dollar is weak. In addition, the more money Mr. Bernanke prints, the more oil and other commodities like precious metals will go up.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Small Stocks Driving the Market
September 28, 2009
This article is adapted from the latest edition of U.S. Global Investors’ Weekly Investor Alert, published each Friday and distributed free to subscribers. Click here to view the entire Investor Alert.
The stock market has been on a tear since bottoming out in early March 2009, with the strongest performance being seen in small-cap stocks.
The Nasdaq, heavy with small-cap companies, was up 65 percent through last Friday’s close from the March 9 low, while the large-cap-loaded S&P 500 Index and Dow Jones Industrial Average had gained 54 percent and 47 percent, respectively, over the same period.
The two charts from RBC Capital Markets below drill down deeper into the inverse relationship between market cap and performance over the past six and a half months.
Figure 1 ranks the performance by capitalization benchmark from the March low through the market close on September 23. Leading the way is the Russell Microcap Index (2,000 small-company stocks with a median market cap of $134 million as of August 31, 2009), which had gained 88 percent. Second is the Russell 2000 Index (median market cap $357 million), up 79 percent.
By comparison, the S&P 100 – big blue-chip companies whose total market cap represents roughly 45 percent of the entire U.S. stock market – were slackers by gaining only 52 percent in the 28-week period.
Figure 2 breaks down the S&P 500 into quintiles, and shows a clear size trend within this broad-market index. The smallest 100 companies in the S&P 500 dramatically outperformed the bigger 400.
The question, of course, is whether or not this trend will persist.
RBC analyzed cycles since 1926 and found that large-cap outperformance cycles on average have lasted 68 months during which large-caps have outperformed small-caps by 17.8 percent annually. But when the small-caps outperform, the cycles have averaged 92 months and the outperformance has been by an average of 18.3 percent.
Business cycle analysis suggests that perhaps we are starting a new leadership cycle for small-caps. If this proves to be the case, it would mark the end of one of the shortest large-cap leadership cycles (beginning in April 2006) since the 1920s.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell MicroCap Index is a capitalization weighted index of 2,000 small cap and micro cap stocks that captures the smallest 1,000 companies in the Russell 2000. The broad index is designed to present an unbiased collection of the smallest tradable securities that still meet exchange listing requirements. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The S&P 100 Index is a market capitalization-weighted index consisting of 100 large blue chip stocks covering a broad-range of industries that is used as a benchmark to measure the performance of large cap stocks.
Net Asset Value
as of 11/20/2009
- Global Resources Fund
PSPFX $8.53 -0.06 - Gold and Precious Metals Fund
USERX $16.05 -0.08 - World Precious Minerals Fund
UNWPX $17.97 -0.02 - China Region Fund
USCOX $8.24 No Change - Eastern European Fund
EUROX $8.97 -0.10 - Global Emerging Markets Fund
GEMFX $7.94 -0.02 - Global MegaTrends Fund
MEGAX $7.94 -0.04 - All American Equity Fund
GBTFX $19.21 -0.10 - Holmes Growth Fund
ACBGX $15.12 -0.06 - Tax Free Fund
USUTX $12.24 +0.01 - Near-Term Tax Free Fund
NEARX $2.22 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change