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InvestWELL Report |
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February 2, 2008
Dear Reader,
In January, the market experienced one of the sharpest downturns since 2000. We have called all our members on the day of the largest drop to reassure them and discuss the importance of not selling into market panics. The market has bounced back since but it is still too early to say if we are facing a prolonged bear market.
Our next InvestWELL Report will be released on March 8, 2008.
(following the Labor Report which is generally recognized as a "market mover").
Derek Polcyn,
President
Investment
Idea
Quiz
Our Results
Market Highlights
Behavioral Finance Indicators
Answer to the Quiz
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Question:
What is the bear market and how should it be dealt with?
Answer:
A market condition in which the prices of stock indices are falling or are expected to fall by 15% or more for prolonged period of time.
Most of the time, it is nearly impossible to recognize the bear market until we are actually in it. The best strategy is to hold on tight and keep a long-term perspective. (Remember, in the long-run, equities deliver about 10% annual return but you need to stay invested).
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Who would normally know that we are heading into the bear market?
A) The press will widely announce it
B) The government would be able to anticipate it and take contrary measures
C) The investment community would warn investors ahead of time
D) Nobody can tell for sure
Answer to the Quiz
at the bottom of the newsletter
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(Cumulative %)
Investment Strategy – MEMBER SECTION
InvestWELL Picks has been able to keep outperforming over the general market (as defined by S&P 500 index. ) Over the last several months, InvestWELL Picks has remained relatively stable, despite large volatility in the market.
Chart 1.
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- During the last month, the US equity market declined steeply and then bounced back, recouping some of the losses (Chart 2 & 3). U.S. stocks rose the most in five years after the Federal Reserve's second interest rate cut in nine days boosted banks, homebuilders and retailers. All sectors advanced after the half-point reduction in the Fed's target for overnight loans between banks bolstered speculation that a recession may be averted.
Charts courtesy of StockCharts.com
- During the last month, the Canadian market experienced a huge drop as it mirrored its US counterpart (Charts 2 & 3).
Charts courtesy of StockCharts.com
- Last month, the US economy lost 17K jobs while the December employment figure had a relatively large upward revision (from 18K to 82K). The January decline was broadly based with large losses in goods producing, construction, and manufacturing sectors.
- Last month, the Canadian economy most likely did not lose any jobs but the official statistics will be available next Friday (the Canadian Statistics are often published with delay but also with a greater level of accuracy).
- The US dollar fell for a second straight week against the Euro after the Federal Reserve lowered its benchmark lending rate by a half-percentage point to 3 percent and indicated that further cuts in borrowing costs may be needed. The European Central Bank is forecast to hold its main refinancing rate at a six-year high of 4 percent next week, maintaining the advantage over the Fed's target.
- Microsoft has made a $44.6 Billion bid for Yahoo, which is seen as a direct attempt to take away a portion of the market share from Google. This is truly a gigantic step in the growing Internet consumer services and advertising business.
- Gathering economic storm clouds have pushed search engine giant Google Inc. into unfamiliar waters with fears over the health of the U.S. advertising market. As companies begin to trim advertising budgets in the face of waning consumer spending, it remains to be seen how Google will weather the storm.
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(see
explanation)
Here is a direct quote from the Behavioral Section in last month's Member newsletter:
"Overall, we believe the market is ready for a short-term rebound. We are not sure, however, if the rebound will be sustainable".
It turns out we are wrong about the rebound but correct on the market not being able to advance.
Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio
Charts courtesy of StockCharts.com
and DecisionPoint.com
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D is correct.
Nobody can tell for sure. Hence, keep your long-term perspective and especially do not sell during market panics.
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Thank you for reading InvestWELL Report. This is a non-member version of InvestWELL Report.
Please sign up for our membership to receive the member version of the InvestWELL Report.
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