|
|
Wealth Management
Insights
submitted by Michael
Chorley, Senior Vice President, Private Wealth
Management,
Minnetonka Office of Robert W. Baird & Company
Despite reporting losses in profits, many
companies' stocks have risen. Do the markets
know something you don't?
It's easy to remain discouraged about the
economy when you read headlines about declining
profits again this past quarter for traditionally
solid companies. But this news isn't
necessarily bad. More than half of companies
reporting earnings through April have actually
been industry estimates. And, at the end of
April, the market was up about 33% overall from
its low in March.
History shows that a rebound in the financial
markets often precedes a broader economic
recovery. Investors who understand the facts
behind the recent headlines should work with their
Financial Advisors to re-evaluate their portfolios
in order to participate in the coming recovery.
What You Should Know:
1. The difference between "Earnings" and
"Estimates"
Professional analysts spend considerable time
researching the companies behind stock ticker
symbols and making careful predictions about each
company's profits for every financial quarter.
These predictions, known as "estimates" often
influence the way people invest. For many
investors, performance relative to earnings
estimates is a more important indicator of
strength and potential for long-term success than
quarterly "earnings" or profits.
Over the past 6 months, many investors reallocated
to more conservative (cash) positions and were
waiting for signs of life before recommitting
those assets to equities. If you look at the
markets' performance in April, you'll see they had
been trending upward prior to the first earnings
reports. This is partly because savvy
investors or their Financial Advisors were
anticipating and seeing favorable results versus
these estimates.
2. Watch the economic vital signs
In addition to earnings and estimates,
economists watch a broad list of indicators to
forecast economic health and activity. Many
investors are aware of the major indicators, but
not all understand the difference between leading
and lagging indicators. The chart below
illustrates the important relationship between
these indicators and market behavior.
For many investors, performance relative to
earnings estimates is a more important indicator
of strength and potential for long-term success
than quarterly profits.
3. Don't wait until it's too late
It took almost a year for the National Bureau
of Economic Research to officially declare the
recent downturn a recession. By the time the
media was able to officially report it, most
investors agreed it wasn't news anymore.
Similarly, the recent rally in the markets is a
strong indicator that there are sound investment
opportunities before a recovery is officially
acknowledged.
What Should You Do Now?
No one knows for certain when the economy will
rebound, but most agree it may, and current
indications are that it may be sooner than many
believed just a few months ago. So, if
you've been waiting like so many people for "good"
economic news before investing again, you should
call your Financial Advisor today and talk about
how you can best reposition your portfolio to take
advantage of the opportunities that will accompany
the recovery.
 |
Leading Economic Indicators:
* Average weekly hours, manufacturing
* Average weekly initial claims for unemployment
insurance
* Manufacturer's new orders, consumer goods, and
materials
* Index of supplier deliveries - vendor
performance
* Manufacturers' new orders, non-defense capital
goods
* Building permits, new private housing units
* Stock prices, 500 common stocks
* Money supply
* Interest rate spread, 10-year Treasury bonds
less Federal funds
* Index of consumer expectations
Lagging Economic Indicators:
*Average duration of unemployment
* Inventories to sales ratio, manufacturing and
trade
* Labor cost per unit of output, manufacturing
* Average prime rate
* Commercial industrial loans
* Consumer installment credit to personal income
ratio
* Consumer price index for services
The S & P 500 index is a
representative sample of 500 leading companies of
the U.S. economy and is considered a large-cap
index. The S & P 500 is unmanaged and direct
investment is not possible. Past performance
is no guarantee of future results.
www.rwbaird.com
©2009
Robert W. Baird & Co. Incorporated. Member
SIPC. First use: 05/10/2009
MC-25195 |
|
Home Page 
