Why is the stock market up?

On any given day, if you were to turn on the news to see why the stock market was up or down you would get a mix of many different reasons.  We’ve heard them all in recent years: the dollar is weak, the Christmas sales season was good, we have too much debt, the jobless rate improved, the Euro is going to collapse, Warren Buffett is buying, it is an election year, oil prices are rising/falling, the Fed cut interest rates and the reasons go on and on. 

My opinion is that the only true reason why stocks go up or down in the long run are because of earnings. But what exactly does that mean? On a basic level, how much more (or less) are the companies that you own making in profit compared to what they made last year. This plays a larger role your investments than anything else.  Many of the factors listed above may affect how much those companies make, and there are times during massive panic (9/11, the recent financial crash, or “Euro-phobia”) that prices will stray from the norm. All things considered, if earnings go up, so will stock prices.

Our chief market strategist, Jeffrey Kleintop discusses this in his most recent market update.  He points out that earning are up 58% over the past 3 years, while at the same time the S&P 500 is up about 55%.  How does this relate? In the short run, he has concerns that earnings may slow and the stock market could react negatively to that.  But over the long run, I believe that companies will use the current technological revolution to find new ways to operate more efficiently and enabling growth. Wireless and internet technologies have become available to almost everyone. For example, the computer in an iPhone is a million times smaller, a million times less expensive, and one thousand times more powerful than the computer used to safely bring back the crew from

Is it 1979 again?

Recently, I have had many client conversations on whether or not investing in or staying invested in the stock market is the right decision to take for their retirement accounts.  There is this notion that the investment world has somehow changed. The 24-hour news cycle and constant conflicting financial media has made it so that buying and holding is no longer a viable way to invest one‘s money.   Add the fact that the S&P 500 has seen very low returns for the past decade, and I can understand why people are frustrated and asking these questions.  

Mark Twain once wrote that history does not repeat itself, but it sure does rhyme.  In August of 1979 Business Week magazine wrote an article entitled “The Death of Equities, How inflation is destroying the stock market.”  I encourage you to Google it and read the full article (4 pages). It is available on Business Week’s website (www.businessweek.com). With that being said, I have taken some of the main points from the article and compared them to what we currently are facing in today’s investment world. I think you will be surprised at the similarities.  

 1.  People are leaving the stock market. 7 million investors defected from the stock market in the 1970’s, along with institutions being given the go-ahead to shift their assets from stocks to alternative investments.

In 2011, the mutual fund industry is on track to see more money coming out of equity mutual funds than what will be

In an election year, stick to your plan!

The prevailing thought from investors going into 2012 seems to remain at extreme caution.  It is an election year after all, Europe remains in a financial crisis, and unemployment is still very high.  The assumption for this year’s investment strategy based off the aforementioned should be to remain “safe” with cash and bonds, right? Not necessarily.

When you first sat down with your advisor to develop an investment plan to reach your goals, making massive changes to your portfolio every year based on what the current economic conditions were was probably not part of the plan you implemented.  Your plan was based on

With your investments, keep tax implication in mind all year long.

Undoubtedly, you’ve heard that the need for tax planning is critical. However, most investors earnestly deal with this subject after the ball drops in Times Square on New Year’s Eve. If the amount of taxes you owed last year was a great concern, and if you’re worried about your potential liabilities this year, consider approaching taxes as many affluent investors do.

 

They make investment decisions with tax implications in mind all year long.

Often, they often keep a record of their transactions during the year and payclose attention to tax-saving opportunities towards the end of the year,

Is the U.S economy in recovery mode?

Last Wednesday, I needed to purchase a new phone, as my existing one had seen its last days. Since my contract allowed for me to upgrade, I decided to join the “smart phone” crusade and upgrade to the new iPhone.  However, this quest was not as easy as I thought. After trying 4 different stores, I was told by each store employee that this item was out of stock!

When discussing our current economic condition, you hear quite a few references comparing the past few years to the Great Depression.  It is hard to imagine that an item as costly as the iPhone would have been completely sold out during the 1930’s.  Obviously it was a different time back then,

The best year-end strategy may be to invest by the book

It has been a textbook year. That is, if your textbook is the Stock Trader’s Almanac. The old stock market chestnut "sell in May and go away" proved to be good advice this year. But that was not the only old adage of Wall Street traders that worked in 2011 — they all worked. This has been the year of the stock market cliché in that

Tips for Transitions: Make the most of your retirement account options

It's a fact: The average American holds nine different jobs before the age of 34.* It's also a fact that the decisions you make about how to manage retirement assets when changing jobs can have a direct impact on your future financial health.

Case in point: "Cashing out" retirement plan assets before age 59½ (55 in some cases) can expose your savings to immediate income taxes and a 10% IRS early withdrawal penalty. On the other hand,