Piecing It Together, May 21
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Tuesday, May 25, 2010
Wednesday, May 12, 2010
An Investor’s Odyssey Is Never a Smooth Ride
An Investor’s Odyssey Is Never a Smooth Ride
May 10, 2010
Last week saw volatility return to equity markets after a long hiatus. The VIX Index, which measures the implied volatility of equities based on options on the S&P500 index, spiked to a level of 42.15 on May 7. While the level was nowhere near as high as that reached following the bankruptcy of Lehman Brothers in September 2008, it serves to remind investors that the global financial crisis that started a year and half ago is not entirely behind us.
In this instance, the small Mediterranean nation of Greece instigated the market sell-off. After months of negotiations between Greece and its fellow European Union members, the country agreed last week to adopt punishing austerity measures in exchange for a $US 143 billion bailout package backed by the EU and International Monetary Fund. While Greece’s fiscal woes have been understood for some time, markets were jolted by the final size of the bailout, the resulting public protests and the potential implications for EU members in similar fiscal situations, namely Portugal, Italy, and Spain. As was the case with Lehman, markets are concerned that Greece is the canary in the coal mine warning greater market declines.
Opposing these sovereign debt issues is continued improvement in economic and equity fundamentals. Statistics Canada reported that 108,700 new jobs were added in Canada in April, bringing the employment rate down by 0.1%. In the U.S., while the unemployment rate inched higher, data pointed to improvement in consumer spending with a 0.6% increase in March – the most in five months. Manufacturing also saw continued expansion with the Institute for Supply Management’s index rising to 60.4, indicating the ninth straight month of expansion. At nearly the end of earnings season, we also received news that 77% of S&P500 companies have reported earnings better than analysts’ estimates. And at the time of writing, the EU unveiled a $960 billion rescue fund for to backstop EU governments in financial distress.
In April, we wrote that this was a time of contradiction – with good and bad news fighting for investors’ attention. The events in Europe, while unsettling, do not shake us from our conviction that investors are best served by holding high quality stocks and not attempting to time the market. The pain of market timing can most certainly be felt by those that sold into the weekend only to see markets rebound on Monday. Rather, at Wellington West Asset Management Inc., we have structured our Canadian and US equity portfolios to benefit from improving equity markets, but with reduced downside risk should the bull market of 2009/10 take a pause.
Sources: Bloomberg, Wall Street Journal, Financial Times
Wellington West Asset Management Inc.
www.wellingtonwest.com
Graeme Hay, CMA
Investment AnalystWellington West Asset Management Inc.
www.jstomenson.ca
May 10, 2010
Last week saw volatility return to equity markets after a long hiatus. The VIX Index, which measures the implied volatility of equities based on options on the S&P500 index, spiked to a level of 42.15 on May 7. While the level was nowhere near as high as that reached following the bankruptcy of Lehman Brothers in September 2008, it serves to remind investors that the global financial crisis that started a year and half ago is not entirely behind us.
In this instance, the small Mediterranean nation of Greece instigated the market sell-off. After months of negotiations between Greece and its fellow European Union members, the country agreed last week to adopt punishing austerity measures in exchange for a $US 143 billion bailout package backed by the EU and International Monetary Fund. While Greece’s fiscal woes have been understood for some time, markets were jolted by the final size of the bailout, the resulting public protests and the potential implications for EU members in similar fiscal situations, namely Portugal, Italy, and Spain. As was the case with Lehman, markets are concerned that Greece is the canary in the coal mine warning greater market declines.
Opposing these sovereign debt issues is continued improvement in economic and equity fundamentals. Statistics Canada reported that 108,700 new jobs were added in Canada in April, bringing the employment rate down by 0.1%. In the U.S., while the unemployment rate inched higher, data pointed to improvement in consumer spending with a 0.6% increase in March – the most in five months. Manufacturing also saw continued expansion with the Institute for Supply Management’s index rising to 60.4, indicating the ninth straight month of expansion. At nearly the end of earnings season, we also received news that 77% of S&P500 companies have reported earnings better than analysts’ estimates. And at the time of writing, the EU unveiled a $960 billion rescue fund for to backstop EU governments in financial distress.
In April, we wrote that this was a time of contradiction – with good and bad news fighting for investors’ attention. The events in Europe, while unsettling, do not shake us from our conviction that investors are best served by holding high quality stocks and not attempting to time the market. The pain of market timing can most certainly be felt by those that sold into the weekend only to see markets rebound on Monday. Rather, at Wellington West Asset Management Inc., we have structured our Canadian and US equity portfolios to benefit from improving equity markets, but with reduced downside risk should the bull market of 2009/10 take a pause.
Sources: Bloomberg, Wall Street Journal, Financial Times
Wellington West Asset Management Inc.
www.wellingtonwest.com
Graeme Hay, CMA
Investment AnalystWellington West Asset Management Inc.
www.jstomenson.ca
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