Year-to-date, the S&P 500 Index is down about 3.5%, which is not bad considering the market was down near 16% from April 23 to July 2. The market is in a trading range right now where it is trading between its lows and highs and not breaking through with any momentum, positive or negative. The Henssler Model Portfolio, as a unit, generally performs better during the markets highs or lows; however, our clients generally perform better relative to our Model during a trading range because of dollar cost averaging. As financial planners, we invest for our clients at a fixed dollar amount at consistent intervals throughout the year, thus capturing lower as well as higher prices during periods of volatility, since stock markets are inherently volatile.
Dollar cost averaging will almost always result in a better performance unless the market is going straight up, which we have not seen in many years. Dollar cost averaging is also a long-term strategy, which requires a consistent dollar amount to be invested at regular intervals.
We also saw the waning of earning season this week with several same-sector competitors reporting. Home Depot (NYSE: HD) and Lowe’s Companies (NYSE: LOW) were both affected by the summer’s heat keeping gardeners inside and homebuilders waiting on the sidelines because of uncertainty in the economy. The companies reported revenue growing 2% and 4% respectively. Home Depot beat earnings per share by a penny at $0.72, while Lowes narrowly missed analysts’ estimates. Lowe’s management issued a cautious outlook and cut its revenue guidance for the year.
Wal-Mart Stores, Inc. (NYSE: WMT) posted higher than expected earnings at 3.4%, which was fueled by overseas growth and cost cuts. While revenue rose 2.8%, it missed Wall Street’s forecast. Target Corporation (NYSE: TGT) reported net income jumped 16% to meet expectations. Revenue—although slightly missing expectations—was up 3.1%. Management provided positive guidance saying they expect revenue at stores that have been open for at least a year should rise from 1% to 3% for third quarter and slightly more for fourth quarter.
John Deere (NYSE: DE) beat expectations because of our country’s strong demand for the company’s tractors and harvesters. Sales jumped 16% and income soared 45%. Despite the good news, the company issued a disappointing forecast citing European weakness with sales expected to fall 15% to 20%.
We feel we are still seeing most corporate managements talk down their forecasts because the Sarbanes-Oxley Act that mandates senior management must certify the accuracy of reported financial statements. Preannouncements have not been as bad as market analysts thought. Most companies, while conservative, are forecasting growth through 2012.
Companies have cash right now, and there are three moves they can make: pay dividends, hire people, or acquire other companies. All are good news for the stock market. This week we have seen BHP Billiton Ltd. (NYSE: BHP) has offered nearly $40 billion for Potash Corp. (NYSE: POT), chip maker Intel Corp. (NASDAQ: INTL) announce they are going to buy technology security company McAffee, Inc. (NYSE: MFE), and computer company Dell Inc. (NASDAQ: DELL) will buy data storage company 3PAR Inc. (NYSE: PAR) for $1.15 billion in cash.
In economic news, the U.S. dollar has strengthened against the euro; however, China appears to be favoring the euro over the dollar as it has been reported they are buying euro bonds. Interest rates fell again this week with 30-year treasuries yielding 3.73%. Ten-year treasuries are down 0.10% to 2.64%. Jobless claims rose unexpectedly to their highest levels since November.
We feel there are a record number of people still taking advantage of the extended unemployment benefits. We stand by our opinion that people in general will not go to work until they have to. They will not take a job paying $14 an hour when they are used to making $20 if unemployment benefits are paying them to do nothing.
We have seen a perfectly rational reaction to the recession. Those who remained employed increased their savings and lowered their debt to income ratio. They have not been spending because they are rebuilding their net worth. We feel there is a substantial amount of misleading information about the economy. Employed households have the wherewithal to spend, but they are choosing not to and will only begin to spend when they feel comfortable again. We believe that consumers will begin to feel comfortable when companies begin to hire as the economy strengthens.
When you live in uncertainty, it is very difficult to make financial decisions. The reality is the economy is going to fluctuate. Our job as investment advisers is to make financial decisions through the uncertainty. When we pick a stock, we do not know what it will do in the market. No one has the mythical crystal ball. We do our best analysis and focus on long-term investments.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
