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Weekly Update

April 30, 2012 By Leave a Comment

Major indexes recovered last week, led by the NASDAQ, which posted a 2.29% gain. NASDAQ’s big gun, Apple, released earnings that knocked the leather off the ball, and the company’s stock rose 5.24%. Essentially, earnings have been better than expected this past quarter but, as we enter the month of May, the key word to consider is caution. Potential downside pressures include an array of geopolitical issues, an economic slowdown in China, a Eurozone recession, and uninspiring economic results here at home. Accordingly, take some profits in those positions with year to date gains exceeding 5%.

 

Since the GDP grew by 2.2% last quarter, well below a consensus minimum annualized growth rate of 2.5%, market performance this week will be dictated by the April jobs report. Investors are looking for confirmation that the U.S. economy is not slowing down. Subsequently, here is the all-important benchmark or yardstick: the unemployment rate may increase from 8.25% to 8.3% but the U.S. must have generated 165,000 new jobs in April. If the jobs report falls below expectations, it is reasonable to presume investors will drive equities down substantially for the week, regardless of earnings results to be released by BP, Pfizer, Comcast, Clorox, Cummins, GM, AIG, Master Card, Visa, and Kraft.

Should the U.S. economy continue to show signs of weakening, the Fed will be viewed as a wild card. If necessary, Bernanke indicated that they are prepared to take further action to stimulate the economy.  However, the Fed is expecting our economy to grow at what they consider to be a moderate rate for a number of future quarters. Additionally, Bernanke emphasized that interest rates will remain unchanged until 2014 at the earliest. Bottom line is that economic data must be quite disappointing to motivate the Fed to take action.

If you are tracking performance, here are the April month-to-date index results.

Dow Industrials 0.12%
S&P -0.36%
NASDAQ -0.72%
Russell 2000 -0.58%

My three recommended Boomer portfolios have performed reasonably well this month in comparison to the news making equity indexes. It is important to note that the portfolios below hold a combination of equity, fixed income and cash.

 

Conservative Portfolio #1

Strategic allocation: 50% equity, 40% fixed income, 10% cash

Three-year standard deviation (measure of risk) 7.58
Three-year standard deviation for the S&P 500 16.69
2012 target return 6.00%
Year-to-date return 4.51%
Month-to-date return 0.38%

 

Symbol Weight Positions   MTD Return
AGG 20% iShares Barclays Aggregate Bond 0.94%
DVY 15% iShares Dow Jones Select Dividends 1.41%
IJH 5% iShares Midcap 400 0.10%
DIA 5% SPDR Dow Jones Industrial Average 0.26%
VIG 20% Vanguard Dividend Appreciation 0.03%
BSV 20% Vanguard Short-Term Bond 0.41%
VB 5% Vanguard Small Cap 0.01%
SPRXX 10% Fidelity Money Market 0.00%

 

Conservative Portfolio #2

Strategic allocation: 55% equity, 40% fixed income, 5% cash

Three-year standard deviation (measure of risk) 9.33
Three-year standard deviation for the S&P 500 16.69
2012 target return 6.50%
Year-to-date return 5.83%
Month-to-date return 0.18%

 

Symbol Weight Positions   MTD Return
RFG 5% Guggenheim S&P Midcap Pure Growth 1.02%
XLI 5% Industrial Select Sector SPDR -0.17%
AGG 20% Shares Barclays Aggregate Bond 0.94%
IHE 4% iShares Dow US Pharmaceuticals 0.13%
RWR 3% SPDR Do Jones REIT 3.12%
SPY 15% SPDR S&P 500 -0.25%
BSV 20% Vanguard Short-Term Bond 0.01%
VB 5% Vanguard Small Cap 12.95%
Vox 3% Vanguard Telecom -0.77%
DTN 15% Wisdom Tree Dividend Ex Financials -0.11
SPRXX 5% Fidelity Money Market 0.00%

Marea’s Growth Portfolio

Strategic allocation: 86% equity, 7% fixed income, 7% cash

Three-year standard deviation (measure of risk) 12.10
Three-year standard deviation for the S&P 500 16.69
2012 target return 7.50
Year-to-date return 10.69
Month-to-date return 0.08%

 

Symbol Weight Positions   MTD Return
RYF 4.47% Guggenheim S&P 500 Equal Weight -1.15%
RFG 10.79% Guggenheim S&P Midcap Pure Growth 1.02%
XLI 5.12% Industrial Select Sector SPDR -0.17%
CSJ 7.34% iShares Barclays 1-3 year Credit Bond 0.10%
IJH 4.63% iShares Midcap 400 0.10%
PGF 6.74% PowerShares Financial Preferred 0.32%
DIA 21.35% PDR Dow Jones Industrial Average 0.26%
SPY 22.89% SPDR S&P 500 -0.25%
VB 4.54% Vanguard Small Cap 0.01%
VBK 5.48% Vanguard Small Cap Growth 0.05%
FDRXX 6.65% Fidelity Cash Reserves 0.00%

 

Given the market’s limited upside potential and an increase in overall global risk, it is prudent to take profits; therefore I’ll lower Marea’s exposure to equity by selling out of the Guggenheim S&P 500 Equal Weight (RYF, up 18.1% YTD) and reducing her allocation to the S&P 500 (SPY, up 12.22% YTD) by 3%. I am also considering selling approximately 5% of the Guggenheim S&P Midcap Pure Growth which is up over 15% year to date further reducing equities to 73% of the portfolio.

Filed Under: Investing, Market Commentary
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