Summer is over! The market chugs on! The volume has been very light over the entire month of August, especially the last two weeks for two reasons; first, its the biggest vacation month of the year and many people in the banking and finance world take their vacations. Second, many of them were waiting for Ben Bernanke, Chairman of the Fed to speak on August 31st, 2012 to give an economic report and speak about policy, specifically about more bond buying (Quantitative Easing) or other tools they many have to stimulate the economy, including keeping interests rates low for a determined amount of time. Since September is typically the poorest performing month of the year, many investors and traders are looking for the markets to pullback and some profit-taking in some of the positions that have outperformed the market. This will be a good buying opportunity into the November Presidential election.
Bernanke came out on Friday and more or less said that the Fed would do whatever they could necessary to help the economy and they will be keeping interest rates low at least a good part of the way through 2014. All of course TBD(To Be Determined) based upon the economy and economic trends. We will probably see action, but only when the Fed determines the numbers are aligned for action. As we anticipated, any news other than "they won't be doing any bond buying" would push up the markets as they did on Friday. We are also looking at Gold headed to $1,800 and Silver to $37 by November (if not, by year-end). The precious metal move is only based upon history when the Fed has either acted or anticipates acting on a bond buying program. Position yourself accordingly, but only as a small part of your portfolio based upon your risk tolerance. Precious metals are very volatile with price movement and can be a nice hedge to select positions you may have.
Economic news has seemed to level out, meaning that they are not necessarily getting worse or getting better. Housing, Banking/Financial institutions and Materials seemed to have found a bottom and have begun to slightly trend higher. Its tough to say which political party will be helped by these numbers because they are both picking apart what they want and presenting it in the light they wish you to see it. Review the facts, understand the factors and consequences to each of the sectors as they move in one of three directions; up, down, sideways. The automobile industry has seemed to have stalled, perhaps because of the summer or other reasons. This industry has a lot of impact on other industries because they supply the automobile industry. Until the Auto, Housing and Banking/Financial industries are truly trending higher and most importantly, with conviction you will see our Unemployment Rate stay at or above 8.3% and our GDP stay at or under 2%. Whether we stay with the current administration or we have a new one, do not expect a quick fix (we said the same 4 years ago). It will take a while before we see the conviction in an uptrend in those industries and hope, change, faith and belief will not change that. In our opinion, look for another 1-2 years (minimum) of stagnant growth. The two biggest drivers to our economy either move up or down is how our Debt is handled over the next few years and how Europe may resolve itself (or not). Many of our largest domestic corporations are "multinational"
Investment Watch: Brazil - as they prepare for the 2016 summer Olympics, the construction and build out has already begun and will be in full force over the next 3 1/2 years. There are several stocks and ETFs to consider if you are interested in making this a part of your portfolio (send us an email to discuss).
Market Direction: Our target range on the S&P 500 Index Levels of 1,400 - 1,425 by end of August was correct. Look for a pullback in September and use that as a good buying opportunity going into the November Presidential election. We expect September to end flat, in the same range we put out there for August before we get a big push forward in October, a potential range on the S&P 500 Index of 1,435 - 1,455.
Great investing starts with Expert Knowledge.
Remember, this article and commentary is not "advise" or any form of a "recommendation"
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