Market Commentary from Ron Mastrogiovanni

Debt ceiling/budget reduction negotiations ended abruptly on Friday. Unless a deal is reached on Sunday, global markets are likely to experience a significant sell off. Rating agencies expected an increase in the debt ceiling and a reduction in US spending in order for the US to maintain its current rating level. It does appear that the US will increase the debt ceiling for some period of time. In addition,  our political leaders will likely stress that serious discussions on spending cuts will begin immediately which in turn will hold off rating agencies from down grading both the US and a number of states. The specifics of a US debt ceiling deal will drive the market action entering this upcoming week.

 

Markets performed well last week primarily driven by corporate earnings with major indexes up between 1.6% and 2.5%.  The majority of the firms beat expectations with the exception of a number of banks and Caterpillar which fell short of its forecast because of eroding margins. Caterpillar did beat top line revenue projections by 8%.

 

This upcoming week is loaded with news including a debt ceiling deal, the Case-Shiller home price index, new home sales, USDA food prices outlook, jobless claims as well as earnings from Texas Instruments, Ford, Amazon, UBS, Aetna, ExxonMobil, Starbucks, and Merck among others.

 

At this point, I do not recommend taking any immediate action based on the news out of Washington. As I mentioned last week, a quick reaction to the news will likely result in selling low and buying high.

 

I’ve been asked on numerous occasions to publish a basic  low expense growth ETF portfolio. Well, here it is but note that I do not endorse a long term buy and hold strategy. Therefore, the following portfolio does not replace the advice and ongoing management provided by a qualified financial advisor.

 

Symbol                 Security                                                                                                                Allocation

Money market fund                                                                                                                               10

CSJ                         iShares 1 to 3 year Corporate Bond Fund                                                            15

DIA                         SPDR Dow Jones Industrial Average                                                                    20

IJH                          iShares S&P Midcap                                                                                               5

RFG                        Rydex 400 Midcap Growth                                                                                    10

SPY                         SPDR S&P 500                                                                                                     20

VB                          Vanguard Small Caps                                                                                              5

VBK                        Vanguard Small cap Growth                                                                                   5

XLI                          SPDR Industrials                                                                                                    5

GLD                        SPDR Gold Trust                                                                                                    5

 

This particular growth portfolio consists of 25% in fixed income and cash, 5% in gold, and 70% in domestic equity. I have not included a specific international position at this point in time because the 45% allocation in large caps currently address a reasonable exposure to both established and emerging international markets.

 

Have a good week.

Ron

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