Markets in a Nutshell
June 7, 2010 Issue
Volatility continues on Wall Street. The Dow dropped 2.0% for the week. The S&P 500 and Nasdaq also declined, 2.2% and 1.7%, respectively. For the year, the Dow is down 4.8%, S&P 4.5%, and the Nasdaq 2.2%. As stocks have fallen and fears in Europe risen, money has flowed into U.S. Treasuries as a safe haven. The yield on the 10 year Note has fallen from nearly 4% to 3.19% since April (meaning prices have gone up for Treasuries). Bonds in general have kept their value with the Barclays Aggregate bond index up 4.25% for the year.
Can’t turn the TV on, surf the Net or pick up a paper without seeing some coverage of the BP Oil spill. While the global economic impact won’t be known for a while (we know there will be impact for many countries, industries), the spill has caused emotions to run high for many (nobody likes to see devastation to nature that way). We do know this from an investment perspective. BP stock has fallen 60% and while it will cost them gobs of money to deal with the mess, it is likely BP will survive and make profits once again (disasters and crisis have often meant investment opportunity, but a caution is not always!). This was also something interesting I read from John Hussman (Hussman Funds). There are 3,800 oil platforms in the Gulf. Of those there are about 130 deep water projects (compared to 17 a decade ago). The BP spill is the first major deep water spill in 10 years.
While subdued, people are still buying stuff. May retail sales came in up 2.7% higher than a year before, making it 9 consecutive months of retail sales growth. Look for tempered overall growth in sales for some years to come as lots of folks pay down debt, save more and spend less. This trend is why we believe consumer discretionary stocks (like department stores- such as Nordstrom’s-, electronics- Best Buy) will lag while consumer staples (food –Kraft-, products- Proctor & Gamble) will be more consistent performers.