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The Market Moves When Congress is Adjourned
August 13, 2009
We often discuss the Presidential Election Cycle’s effect on markets but what about other main branches of government? The research group ISI dusted off an academic study on Congress’ effect on stock markets from a few years ago.
Ferguson and Witte published “Congress and the Stock Market” back in March of 2006. They found that the market performs better when Congress is adjourned.
| Note: Data for the Dow begins in 1879 and data for the S&P 500 begins in 1957 | ||
| Annualized Returns | In Session | Out of Session |
| In Session | 0.38% | 1.87% |
| Out of Session | 5.30% | 5.17% |
When comparing the difference between in session returns and out of session returns, the Dow Jones Industrial Average is almost 5 percent higher out of session, and the S&P 500 is 3.3 percent higher during out of session periods. Even more surprising is that 93 percent of gains for the Dow since 1879 have occurred during out of session days.
The researchers also found that public opinion of Congress strongly affected market returns. For every 10 percent increase in disapproval, the market jumped 2.4 percent when Congress adjourned.
Back then, the disapproval rate was at 31 percent and now that’s more than doubled. The most recent NBC/Wall Street Journal poll says 63 percent of Americans disapprove of the job Congress is doing.
Since Congress adjourned on August 1, the Dow has jumped 2.27 percent and the S&P 500 is up 1.98 percent.
This covers less than 10 trading days so the data set is small, but it illustrates the infinite number of factors that can drive the market. In this environment, public opinion and consumer sentiment can be just as significant as a company’s financial statement.
People need to believe a recovery is happening in order for one to occur.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. 09-560
Recession Recovery: An Uneven Union
August 07, 2009
When it comes to a recession, not all states are created equal. Some economically strong states have managed to weather the financial storm while other more vulnerable states were hit especially hard by the economic bombshell.
States like Michigan, Nevada and Oregon have seen unemployment spikes as the recession crumbled the states’ cornerstone industries.
That’s the bad news. The good news is some states have become pockets of strength and are showing the recession is subsiding.
One of these states is Virginia, which edged out last year’s winner, Texas, to take top spot in CNBC’s annual “America’s Top States for Business” report.
While it didn’t rank number 1 in any of the individual judging categories, Virginia scored in the top-10 for its workforce, economy and its quality of education, thus taking the top spot overall.
Though it finished second, the Lone Star State has had its share of good press lately.
The Economist ran a cover story a few weeks ago that contrasted the strength of the Texas economy with the struggles of California.
Read the Economist article here*
The article points out that more Fortune 500 companies (64) call Texas home compared with New York (56) and California (51). In addition to a pro-business tax structure, Texas has the benefit of having ample natural resources and geography on its side—major port access, cross-border trade with Mexico and hundreds of square miles of farmland.
Texas also has a relatively low foreclosure rate—1 per 785 households—while California is near the top with 1 per 132 households.
Forbes currently lists two Texas cities in its top-25 cities for business and careers. Austin is ranked number 8 while San Antonio—home of U.S. Global Investors—ranks number 16.
I should point out that Texas is not without its problems. As the Wall Street Journal pointed out a few weeks ago, a two-year drought and heat wave have severely damaged the South Texas farming and cattle industries.
As the economy recovers, it’s important for investors to identify those pockets of strength that will outperform others. Just as the global economy will rely on a handful of countries to right the ship, certain states will need to lead the U.S. down the road to recovery.
*This link goes to The Economist Web site. U.S. Global Investors does not endorse any information supplied by this website and is not responsible for any of 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. 09-540
Keep an Eye on Money Supply
August 05, 2009
One of the most important factors to watch for the U.S. economy and commodities is money supply. Put simply, money supply is the total amount of money available in an economy. This includes bills, coins, credit and all other forms of liquid financial instruments.
James Turk, founder of GoldMoney.com, wrote an interesting explanation of the basics of money supply that’s currently available on Kitco.com. In it, Turk explains the underlying supply and demand imbalance between the amount of money that is being printed and the overall demand for it.
There are a couple different measures of money supply but at U.S. Global, we follow M2 the closest because it is the broadest measure of money currently available—all money in circulation plus savings deposits and money market accounts for individuals.
As you can see from the chart below, M2 spiked in the fall of 2008 as the Fed sought to inject additional liquidity into the U.S. economic system.
This particular chart focuses on the U.S. but the same is true on a global basis. Countries in Europe, China and other places around the world have seen a jump in money supply. According to ISI, global money supply now sits near 10 percent.
With so much excess money in the global financial system, the idea was that some of it had to find its way into financial markets.
What we’ve found is that some of that excess supply often ends up landing in riskier areas—which may help explain why the Nasdaq has outperformed other markets so far this year.
Over the same time period, many commodities have rebounded sharply.
Increases in money supply have fanned inflationary fears and pushed funds toward traditional inflation hedging instruments like gold, oil and other commodities.
Deflationary forces have been strong during the economic downturn and it may be some time before inflationary pressures set in. However, if the supply of money continues to grow faster than our economy can absorb it, the likelihood of higher inflation increases.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. 09-529
Whose Stimulus Will Work Best?
August 01, 2009
The G20 economic meeting that starts Thursday in London could prove to be an important sharing of ideas on how to solve the global financial crisis.
With this in mind, CNNmoney has detailed how 10 countries have approached this challenge within their own borders.
While varied in size and scope, most of these countries have put together some form of stimulus package. Infrastructure projects, tax cuts and “bad bank” asset purchases have proven popular solutions.
Of course, the two biggest stimulus packages are from the United States ($1 trillion+) and China ($586 billion and growing).
Most of the 10 countries cited by CNNmoney will be at the G20 table in London. One that won’t is Iceland, where the financial sector soared to astounding heights and then crashed spectacularly.
Iceland’s stimulus plan to deal with 18 percent inflation, 10 percent GDP shrinkage and a crippling currency collapse? A $5 billion handout from the IMF and lots of negotiation to restructure its massive external debt.
*By clicking the link you will be redirected to the Reuters website. U.S. Global Investors does not endorse any information supplied by this website and is not responsible for any of 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.
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Obama and the Market’s Carnival Ride
July 01, 2009
We probably don’t have to tell you that being in the stock market in 2009 has been like spending six months on Coney Island’s Cyclone roller coaster—turn by turn a terrifying and exhilarating ride.
In the graphic below, the blue line shows the performance of the S&P 500 since Barack Obama became president on January 20, while the red line is the average performance of that index for each presidential term going back to Dwight Eisenhower’s first term in 1953.
The Presidential Election Cycle is one of the many commodity seasonal and other cycles that we monitor to help inform our investment decisions.
The typical pattern for the first five-plus months of a presidential term is mostly sideways as new administrations take shape and second-termers reshuffle people and set new priorities.
But President Obama didn’t have the luxury of an easing-in period, since markets were already in deep distress when he took the oath of office.
After a brief inauguration rally, the sharp downward trend continued until a bottoming-out in early March, with the S&P 500 falling more than 16 percent from the time the new president took his left hand off the bible.
I was in New York in early March, and never had I seen so much negativity among those in the investing world. Even members of the financial media, who are supposed to keep an arm’s length distance from the news, were openly in despair about the markets.
After the S&P 500 closed at a decade low on March 9, there came a series of events in Washington that gave me confidence at the time that we had finally seen the bottom.
On March 10, Congress let it be known that the uptick rule for short sales would be restored in some form. The same day, President Obama signed a $410 billion economic stimulus measure.
A couple of days later, at a committee hearing in the House of Representatives, the head of the board overseeing accounting standards said new guidance was coming on applying FAS 157’s mark-to-market rules—these rules compelled major banks and other financial companies to write down many billions of dollars worth of securities on their books, weakening them to the point that they required many billions of federal dollars just to stay alive.
Less than a week after that, the Federal Reserve announced it would buy up to $1.5 trillion in mortgage-related securities this year and another $300 billion in long-term Treasury debt. And soon after came the G-20 meeting in London, where the major countries of the world committed more than $1 trillion to a global recovery plan.
All of this good news injected optimism into the market. By the end of April, the S&P 500 was up nearly 30 percent from its March low and it gained another 8 percent by mid-June before flattening out at a level well above the average for this point in a presidential term.
Dramatic ups and downs can be exciting at an amusement park, but no one wants to see that kind of volatility in their investment portfolio.
More positive indicators are emerging, so as we start the second half of 2009, we are increasingly confident that the Cyclone-like thrill ride that has marked President Obama’s tenure so far will be replaced by steadier and more sustainable markets.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. 09-442
Net Asset Value
as of 09/08/2010
- Global Resources Fund
PSPFX $8.78 +0.05 - Gold and Precious Metals Fund
USERX $17.44 +0.03 - World Precious Minerals Fund
UNWPX $20.18 -0.01 - China Region Fund
USCOX $8.61 -0.02 - Eastern European Fund
EUROX $9.11 +0.13 - Global Emerging Markets Fund
GEMFX $8.17 +0.08 - Global MegaTrends Fund
MEGAX $7.71 +0.04 - All American Equity Fund
GBTFX $20.02 +0.09 - Holmes Growth Fund
ACBGX $16.04 +0.15 - Tax Free Fund
USUTX $12.58 -0.01 - Near-Term Tax Free Fund
NEARX $2.26 -0.01 - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change