Brighton Perspective

Correction?

The recent market downturn is cause to wonder if we're in the early stages of a market correction. As we entered the year, investors were looking for 26% earnings growth from S&P 500 constituents while economists were looking for 3% GDP growth (consensus). Per Dave Rosenberg, at Gluskin-Sheff, 65% of the companies have reported and, ex Financials, earnings growth has been 16% while gross revenue growth has been 2%. These results should cause investors to rethink their 2010 earnings expectations and price equities accordingly.

Weekly Update

The Markets                            The down draft continued for the first week of February as investors continued to parse the economic data for true signs of recovery. Personal income and spending increased slightly in December which was a positive but the growth was not enough to dispel concerns about the consumer contribution to the recovery. In fact, consumer credit fell again further suggesting that consumers will not be contributing significantly to the recovery any time soon. Finally, unemployment dropped below 10% in the latest report, but investors noted the significant increase in discouraged workers underlying the drop.   Market/Index 2009 Close Prior Week As of 02/06/10 Week Change YTD Change DJIA 10428.05 10067.33 10012.23 (0.55)% (3.99)% S&P 500 1115.10 1073.87 1066.19 (0.72)% (4.39)% MSCI World 1168.47 1119.64 1095.48 (2.15)% (6.25)% Russell 2000 625.39 602.04 592.98 (1.50)% (6.38)% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.84% 3.61 3.59 (2) bps (25) bps Last Week's Headlines ·         Personal income and spending increased in December. Personal income was slightly above expectations while spending was slightly below expectations. ·         Construction spending declined more than expected. ·         Initial jobless claims increased more than expected. ·         Unemployment declined to 9.7% which was better than expected but the number of discouraged workers (not counted as unemployed) surged.   Upcoming Items of Interest ·         The coming week brings an update on Wholesale inventories (Tuesday), January Treasury budget (Thursday), January retail sales (Thursday), Business inventories (Friday) and the Michigan consumer sentiment index (Friday). Of course, we’ll have the on-going issues with Greece and the potential impact of a default or bail-out on the European Union and the Euro.    Data source: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Headlines and upcoming items of interest are pulled from published reports of Vanguard, Briefing.com and Reuters. Past performance is no guarantee of future results. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The MSCI World Index is a free-float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

Stocks, Metals Plunge as Dollar Gains on Debt, Jobs Concerns - Bloomberg.com

Stocks, Metals Plunge as Dollar Gains on Debt, Jobs Concerns - Bloomberg.com.

It's startling to me to see the media continue to use the word "unexpected" related to any bad economic news, particularly jobs. As we've said before, Corporate America faces substantial uncertainties regarding potential cost increases related to greater regulation and taxation. Given the inability to gain clarity regarding these issues, Corporate America continues to focus on cost containment. The largest component of the cost structure is labor. Hence, Corporate America is intensely focused on managing labor costs. That can translate into layoffs or to hiring freezes. Neither is good for consumers and neither should be "unexpected". Until the government clarifies its intent with regard to taxes and regulation, Corporate America will be hesitant to spend.

We've anticipated a market correction of 15-20% at some point during 2010. We assumed it would be driven by investors resetting expectations to reflect lower GDP growth and the resulting negative impact on corporate earnings growth. It appears it may be happening a little earlier than expected, but it is not "unexpected".

Special Announcement!

Brighton Financial Planning, Inc.

Announces Its Acquisition by

John P. Middleton, CFA, CAIA

 

Clinton, NJ - February 2, 2010  - John P. Middleton and James J. Chesterton are proud to announce that John has acquired the outstanding stock of Brighton Financial Planning, Inc. effective 12/31/2009. We believe the acquisition by John will ensure the legacy of sound financial planning and prudent investment management established by Jim over the past 25 years. Jim, Nina, Sree and Lorraine will continue with Brighton to ensure a seamless transition of management responsibilities.

Brighton Financial Planning, Inc. will continue to provide prudent investment management, financial and estate planning, investment advisory services and comprehensive portfolio analysis and reporting. We look forward to another 25 years of continued outstanding service to our clients!

 

 

About Brighton Financial Planning, Inc.

 

Brighton Financial Planning, Inc. was established in 1984 by James J. Chesterton, Jr. and is a SEC Registered Investment Advisor. The firm is a fee-only advisory form and provides financial and estate planning, investment management, investment advisory and comprehensive portfolio analysis and reporting services. The firm is located at 1728 Rt. 31, Clinton, NJ 08809. The phone number is 908-730-7000.

About John P. Middleton, CFA, CAIA

John joined Brighton Financial Planning, Inc. in August 2008. John has more than 20 years experience covering institutional and individual financial services. John graduated from Rutgers University and from the University of Tampa, where he earned an M.B.A in Finance in 1993. John is a Chartered Financial Analyst (CFA), a Chartered Alternative Investment Analyst (CAIA) and is a member of the CFA Institute, the New York Society of Security Analysts, and the CAIA Association.

Weekly Update

The Markets                            Financial markets were down again for the week closing January down uniformly. While the vast majority of companies met or exceeded earnings estimates for the fourth quarter and full year 2009, many did so without demonstrating meaningful top line revenue growth. At one point, aggregate gross revenue growth, x financials, was 0%, even as net earnings growth was in low double digits. Investors appear to be shifting from emphasizing reported earnings growth to top line growth as evidence of true economic recovery. GDP reported on Friday was superficially positive at 5.7% but upon further review demonstrated that most of the growth was via inventory reduction and not from much needed corporate and consumer spending. Fasten your seatbelts!   Market/Index 2009 Close Prior Week As of 01/29/10 Week Change YTD Change DJIA 10428.05 10172.98 10067.33 (1.04)% (3.46)% S&P 500 1115.10 1091.76 1073.87 (1.64)% (3.70)% MSCI World 1168.47 1149.89 1119.64 (2.64)% (4.19)% Russell 2000 625.39 617.12 602.04 (2.44)% (4.95)% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.84% 3.62 3.61 (1) bps (23) bps Last Week's Headlines ·         On Wednesday, the FOMC stated it would continue to maintain the Fed Funds rate at 0.25% for an “extended period”. ·         GDP grew at 5.7% annualized for the fourth quarter of 2009. ·         Durable-goods order increased (positive) but less than expected (negative). ·         Both existing and new home sales declined for December – both declines were unexpected. ·         Consumer confidence increased slightly to its highest level since September 2008.   Upcoming Items of Interest ·         Personal Income, construction spending and manufacturing activity all reported on Monday, the ISM non-manufacturing report on Wednesday, productivity and factory orders on Thursday and employment and consumer credit on Friday. We’ll also hear from the White House regarding the 2011 Federal budget. Expect continued coverage of the financial crisis in Greece and its effect on the European Union.    Data source: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Headlines and upcoming items of interest are pulled from published reports of Vanguard, Briefing.com and Reuters. Past performance is no guarantee of future results. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The MSCI World Index is a free-float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

Economy in U.S. Grew at 5.7% Pace, Most in Six Years (Update3) - Bloomberg.com

Economy in U.S. Grew at 5.7% Pace, Most in Six Years (Update3) - Bloomberg.com.

Nice growth but 60% was due to inventory reductions. That isn't sustainable. We'll need to see more corporate spending (which did improve more than expected), more consumer spending (which didn't) and less government spending (which was a small net negative on growth).

Biggest concern after listening to the State of the Union address last night regards "doubling exports in the next five years". As has been noted several times this morning on other sites, doing so not only involves producing goods other markets want but stimulating demand in those markets.Easier said than done - most easily accomplished by devaluing the dollar!