Solis Wealth Management Report – April 15, 2013

The Markets

Last week, the term ‘Easy Money’ conjured both comedian Rodney Dangerfield and the U.S. Federal Reserve, and no one was certain how much respect either one should get.

The Fed accidentally e-mailed its market-moving Federal Open Market Committee (FOMC) meeting minutes to congressional staffers and trade lobbyists on Tuesday at 2 p.m. The minutes weren’t supposed to be released to anyone until Wednesday at two. Once the mistake was realized, the Fed released the minutes early on Wednesday morning.

Markets enthusiastically embraced the minutes which appeared to focus on the idea quantitative easing will continue. The Dow Jones Industrial Average closed at a record high more than once last week, and the Standard & Poor’s 500 Index is already nearing analyst’s targets for the full year.

The minutes indicated committee members were less clear on the issue, according to the Washington Post, which reported:

“A few Fed officials think QE (Quantitative Easing) should be stopped immediately; a few think it should be shrunk fairly soon; many think it should be slowed if we see a rebounding job market; a few think it should continue at its current size until the end of the year; and a couple think it may need to be increased. The minutes also make clear Fed officials are not all on the same page in determining the economic climate that would trigger that tapering.”

Committee members are not the only ones who don’t know what to think about the economy. Consumer sentiment has been volatile. According to The Wall Street Journal, the Thomson-Reuters/University of Michigan consumer sentiment index showed consumer sentiment improved significantly from mid- to late-March only to decline again from late-March to mid-April. Bloomberg.com speculated weaker consumer sentiment may have been the result of the payroll tax roll and weaker U.S. economic data.

Data as of 4/12/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

2.3%

11.4%

14.5%

9.9%

3.7%

6.0%

10-year Treasury Note (Yield Only)

1.7

N/A

2.0

3.9

3.5

4.0

Gold (per ounce)

-2.1

-9.3

-8.0

9.8

10.6

16.8

DJ-UBS Commodity Index

-0.2

-3.8

-5.3

-0.2

-8.7

1.8

DJ Equity All REIT TR Index

2.6

12.8

24.1

17.6

7.7

12.7

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

 

It has been said stock market returns revert to the mean, but what does that mean? Reversion to the mean is a statistical phenomenon. It’s the idea the further something is from the mean – or average – the more likely it is the next thing that comes along will be closer to the mean. For example, if a baseball player has a batting average of .330 and hits .180 in a game, it’s likely that player will hit better in the next game (unless, the player’s in a slump, but that is a different topic).

Reversion to the mean is the theory behind a variety of investment strategies. Analysts who employ the theory may look at an average price, an average return, or another financial statistic they find relevant. For example, they may consider whether a company’s recent performance varies significantly from its historical average performance. If its performance is worse than average, some analysts may decide the company’s price is likely to revert to the mean. In that case, they may choose to invest in the company. If the company’s performance is better than average, analysts may decide to sell shares. Similarly, if a market or index – such as the U.S. Treasury market or the Standard & Poor’s 500 Index – performs significantly worse than its mean, investors may decide better performance is ahead, and vice versa.

In 2009, an article in Forbes stated, “Mean reversion is an odd concept because it’s clearly not causal. The market’s historic return of 9 percent a year is based on over 100 years of data (what’s typically considered the modern stock market), and, of course, the ride to 9 percent is a bumpy one with major double-digit up years and big double-digit down years all averaging to that 9 percent number.” The point is any average is a moving target. After all, a significant downward movement pushes the historical mean lower and a significant upward shift pushes it higher.

Regardless of the investment theories employed by analysts and money managers, investors may want to set financial goals, carefully choose asset allocation strategies, hold well-diversified portfolios, and maintain their long-term perspective.

 

What’s happening at Solis Wealth Management?

Please enjoy this week’s commentary from ~ Bob Medler, LPL Wealth Advisor

March madness is over and what a tournament it turned out to be.  There were plenty of underdogs winning, highly rated teams out early and Louisville coming through to win it all.  I haven’t met anybody willing to tell me how well they did with their bracket!  UCONN women won their 8th championship to take the women’s tournament.

This past weekend our house was full with family here for the Coachella Fest.  The nice thing is our granddaughter was also here so Viki and Lilly spent a lot of quality time while her parents were off to party and listen to music.

Robert and Bonnie had a wonderful time in China.  It worked out pretty good for them with work in the morning visiting different facilities and then sightseeing in the afternoon followed by work dinners with different organizations and companies.

Viki turned 60 a few weeks ago with a surprise birthday party in Phoenix.  I played golf on the way to Phoenix, attended an Angels preseason game and then a family dinner.  As always please do not hesitate to call us if you need anything.  ~ Bob

Best regards,

Greg R. Solis, AIF®
President

Solis Wealth Management
78-075 Main Street
Suite 204
La Quinta, CA 92253
Office: (760) 771-3339
Fax: (760) 771-3181

www.soliswealth.com (http://www.soliswealth.com/)
E-Mail: greg.solis@lpl.com

CA Insurance License #0795867

Greg R Solis is a Registered Representative with and
Securities offered through LPL Financial, Member FINRA/SIPC

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_______________________________________________________________

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Solis Wealth Management Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/10/oops-fed-minutes-inadvertently-released-early-show-a-divided-fomc/

http://www.foxbusiness.com/industries/2013/04/10/fed-inadvertently-releases-fomc-minutes-to-banks-others-prematurely/

http://www.bloomberg.com/news/2013-04-10/u-s-stock-futures-advance-before-budget-fed-minutes.html

http://www.marketwatch.com/story/fearless-investors-buy-rally-as-earnings-ramp-up-2013-04-13?siteid=yhoof2

http://blogs.wsj.com/economics/2013/04/12/consumer-sentiment-at-lowest-level-since-july-2012/

http://www.bloomberg.com/news/2013-04-12/michigan-consumer-sentiment-declined-in-april-to-nine-month-low.html

http://mathworld.wolfram.com/ReversiontotheMean.html

http://www.investopedia.com/terms/m/meanreversion.asp

http://www.forbes.com/2009/01/08/intelligent-investing-mean-reversion-indexing-panelJan9.html

http://www.brainyquote.com/quotes/authors/b/buddha.html#bZoCEd41fpvTO4rQ.99