It was a strong week for U.S. markets as the Dow Jones jumped 2.23% and the S&P 500 nudged 1.23% higher. The MCSI Emerging Markets Index also rose, but by only 0.45%.
Big gainers in your Alpha Investor Letter portfolio included Visa (V), jumping 3.80%, iShares MSCI Singapore Small Cap Fund (EWSS), climbing 2.44%, and Guggenheim Spin-Off (CSD), up 2.10%. Google Inc. (GOOG) dropped below its 50-day moving average and now is a HOLD.
Once the market digested the United States’ climb down from an imminent attack on Syria, the big news in financial markets this week was all about the U.S. Federal Reserve.
First, both U.S. and global markets rallied sharply early this week on news that Larry Summers had withdrawn his name from consideration to become chairman of the Fed due to political opposition in Washington. That makes current Fed Vice Chair Janet Yellen the favorite for the post, and she is widely viewed as less hawkish than Summers would have been. That was unambiguously good news for “risk on” assets.
Second, today is all about the Fed’s expected tapering of its $85 billion monthly purchase of mortgage bonds, signaling the beginning of the end of quantitative easing. Some amount of tapering is already priced into the market. The question is how much.
The Fed will be walking a tightrope for many years to come. Too much tapering and markets will fall out of bed as they did even at the hint of tapering in May. Too little, and the doom-and-gloom crowd’s nightmare about inflation just might come to pass.
Some have suggested that Larry Summers confirmed his much-vaunted brilliance by passing on what will inevitably be a thankless task. He may be right in that.
In either case, your holding in the ProShares Ultra-Short 20+ Year Treasury (TBT) positions you well to profit from the inevitable rise in interest rates.
Overall, September has been unexpectedly strong, with the market pretty much straight up since the first day of the month.
Based on research from Sentimentrader.com, this actually bodes well for the market for the rest of the year and confirms my bullish bias.
- There have been 27 other times that the S&P 500 managed to get through the first two weeks of September without a single dip below the August closing price. Through the end of the year, the S&P 500 scored additional gains 93% of the time, averaging a 5.9% rise.
- If September gained more than 3%, (as it has so far this month), then the S&P 500 performance was an even more impressive average of +8.8%, with one loss out of eight occurrences.
- That’s a very impressive set of figures, with a significant upside looking ahead to the end of 2013.
- That does not mean we won’t have a pullback between now and then. But it does mean that you should use any such pull back to add to your positions.
Portfolio Update
Berkshire Hathaway (BRK-B) gained 1.58% last week. The Bakken oil fields in North Dakota have seen production rates skyrocket in the wake of the recent U.S. “oil rush.” July production numbers reflect huge production increases, with Bakken production now accounting for at a full 12% of total American oil production. True form to his “Oracle of Omaha” moniker, Warren Buffett managed to purchase the Burlington Northern Railroad years earlier — a railroad that is now responsible for shipping a large portion of that Bakken oil and making handsome profits for Berkshire Hathaway. BRK-B is just pennies below its 50-day moving average (MA) and remains a HOLD.
Visa Inc. (V) rose 3.80% over the past five trading days. Visa will have the unique privilege on Monday of joining the handful of select blue chip stocks that make up the Dow Jones Industrial Average. Visa is one of three incoming new stocks, along with Goldman Sachs and Nike, replacing Bank of America, Alcoa Inc. and Hewlett-Packard. V is a BUY.
iShares MSCI Ireland Capped Investable Market Index (EIRL) added 1.30% last week. The third time really was a charm for EIRL yesterday as it managed to finally climb through its significant $32.35 resistance level — a move it has been attempting since early August. EIRL is a BUY.
iShares MSCI Singapore Small Cap Fund (EWSS) gained another 2.44%. EWSS closed a third week of gains after bouncing strongly from its $27.50 support level at the start of the month. The “Asian Tiger” is roaring once again and appears able to break above the challenging $29.50 level. EWSS is a BUY.
Google Inc. (GOOG) slipped 0.29% last week, coming to rest just under its 50-day MA. Although Google is a business with many open fronts to success, competitor Microsoft’s successful big initiatives only amount to its Windows operating system, Microsoft Exchange/Office product and Xbox gaming platform. However, with products like “Google Apps,”“Google Drive” and email service “gmail” gaining mind and market share, this puts the enormous share of Microsoft’s Exchange/Office product squarely in Google’s sites as another product space to dominate. By providing both enterprises and individuals comparable functionality, and for many at the extremely low price of “free,” Google is well positioned to achieve dominant market share in an advertising space that users view on a daily basis. GOOG is a HOLD.
WisdomTree Japan Hedged Equity (DXJ) dipped 0.52%. Hedge funds are required to file a quarterly report disclosing the positions they are holding. Some of the most popular hedge fund holdings are gold via the GLD exchange-traded fund and emerging markets via the behemoth EEM exchange-traded fund. Another of the top five picks revealed by these disclosures was none other than Japan via DXJ. You are in good company with your position in hedged Japanese equities. DXJ is a BUY.
Guggenheim Spin-Off (CSD) gained 2.10% over the previous week. CSD has been making new highs recently, and doing so even above a strong resistance level. This is a positive show of strength for future gains in CSD, especially as we get nearer to the traditional strength of the fourth quarter. CSD is a BUY.
PowerShares Buyback Achievers (PKW) added 1.86% last week. The second fund in the trio of your “Buffett-beating” holdings has been following in CSD’s footsteps over the past two weeks, making a similar sustained move above resistance. PKW is at a new 52-week high and remains a BUY.
First Trust US IPO Index (FPX) rose 1.38%. FPX also spiked on Monday to hit a new 52-week high. Twitter is making moves towards its own initial public offering (IPO) and the market couldn’t be happier. Twitter’s IPO prospects could be even higher than that of Facebook’s IPO and FPX is certainly a candidate to profit from the Twitter excitement. FPX remains a BUY.
WisdomTree Japan SmallCap Dividend (DFJ) gained 0.76% over the previous five trading days. DFJ has been making a quiet comeback over the past three weeks, bouncing nicely from its 200-day MA. Much of this is attributable to recent weakness in the Japanese yen, which is a positive for Japanese equities. DFJ is a BUY.
Vanguard Global ex-US Real Estate ETF (VNQI) rose 1.12%. The Federal Reserve will release its decision today on whether “to taper or not to taper.” The consensus on the street is such that the Fed will do very little, if anything at all, to affect interest rates — and this is largely based on the belief that any significant upward tick to interest rates could damage the housing recovery. Although VNQI should be immune to U.S. mortgage rates, any rise would likely be felt in the global real estate sector as well. VNQI is a BUY.
iShares S&P Global Timber & Forestry Idx (WOOD) ended the week up 1.39%. The resurgence of the housing sector has not only added to the rise in timber prices, but also has contributed to recent timber market volatility. As demand for homes and wood reignites, logging operations begin to come back online to supply needed lumber. This process can lead to fits and starts in lumber supply and therefore to uneven lumber pricing. This has likely contributed to WOOD’s fluctuations over recent months. WOOD is a BUY.
PowerShares Global Listed Private Equity (PSP) gained 1.44% to join the many positions hitting new 52-week highs in your portfolio. Continued low interest rates have been a likely driver in PSP’s success as investors scramble to lock in low financing rates to augment funding of their latest business ventures. With the Fed’s expected re-inflation of interest rates likely to fall on the conservative side, expect this rush to cheap money to continue. PSP is a BUY.
Market Vectors Biotech ETF (BBH) added 0.78% last week. Biotech’s run from the 50-day MA continued last week as BBH also hit a new 52-week high. The biotech sector continues to be one of the strongest gainers so far for 2013, outperforming even the impressive 20% year-to-date gain of the S&P 500 benchmark. BBH is a BUY.
ProShares Ultra-Short 20+ Year Treasury (TBT) lost 2.42%. TBT has been making sustained gains since June of this year and, with the Fed’s widely expected start to “tapering” happening sooner rather than later, TBT is sure to continue its move higher for a very, very long time to come. TBT is a BUY.
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