The bursts of color in the sky may be over for this year’s Independence Day…but there are more fireworks soon to come on Wall Street.  Not much can compare to recent stock pyrotechnics. After suffering June gloom for most of the month, a skyrocket of gains for the last five days has produced the best week for equities in two years.  For the week, the Dow Jones industrial average rose 5.4 percent, the S&P 500 gained 5.6 percent and the Nasdaq Composite Index climbed 6.2 percent — marking their biggest weekly percentage gains since July 2009. Some reasons for the surge include: lower oil prices, Japan and Greece on the mend, higher manufacturing numbers, and expectations of more growth ahead in the US and abroad.  

We have new Wimbledon Champions: Petra Kvitova of the Czech Republic and Serbia’s Novak Djokavic. Two weeks ago, 22 year-old Rory McIlroy from Northern Ireland won the US Open by 8 strokes. Rory finished with a record 16 under par and became the youngest winner since Bobby Jones in 1923. Ironically, last year’s US Open winner, Graeme McDowell is also from Northern Ireland. How do these relatively small, politically charged and shifting countries produce such great athletes?  I don’t know…but Europe has certainly been on a roll lately. The S&P Europe Fund 350 (IEV) is ahead by 10.7% for 6 months and the I-Shares MSCI Eastern Europe Fund (ESR) is up 29.1% this year.

Stats of significance year-to-date: DOW +8.6%, S&P 500 +6.5%, Nasdaq +6.1%, Mid-Caps +10.7%, Small-Caps +9.4%, Real Estate +12.6%, Healthcare +15.4%, Energy +13.6%, Utilities +10.4%, and Telecom +12.2%. A barrel of oil is now $94, an ounce of gold is $1,482, and the 10-year Treasury note yields 3.18%.[1]

 “A beautiful thing never gives so much pain as does failing to hear and see it.” Michelangelo

Driving through the vineyards and under the olive trees of Tuscany last month, I could see how an Italian life in the countryside could be so “molto bello”.  Surrounded by beauty and simplicity, with a variety of art, music, pasta and wine…it is the birthplace of the Renaissance.  Of course, having an Ipad, the Internet and Skype were great for staying in touch. What do you suppose Michelangelo would say about these technologies?  In the latest technology news, Facebook is trying to block contact information headed for Google, Microsoft is hooking up with Baidu in China, and Netflix is expanding overseas into 43 new countries.[2]

The big political news of our country’s debt ceiling is creating a feeding frenzy for doomsayers, critics, and bear market prognosticators. Doesn’t the controversy remind you a bit of Y2K?  It certainly makes sense that our economy could experience a major shock if the country’s “credit card” was over the limit and no future charges were honored. We would have to readjust our finances, make deeper cuts, and bring our expenses in line with our income. Would this action really upend our financial world and put us on to the brink of economic disaster? Fitch, Moody’s, and Standard & Poor’s rating services have suggested that a downgrade of US debt would be in order if Congress is unable to raise its $14.3 trillion debt ceiling by the deadline of August 2, 2011.  It makes for a good story and an excellent negotiating tool in Washington…but I have a feeling that the sizzle will fizzle like Y2K…and the politicians will make a deal just around the time of the perfect storm.

  
Betting big on past performance can be treacherous. Take for instance three of the best known US stock pickers who are now competing for last place this year: Bruce Berkowitz of Fairholme Capital, Ken Heebner of Capital Growth, and Bill Miller of Legg Mason. Their funds are three of the worst performers among large cap US mutual funds in 2011 through June 13th.  They predicted a significant economic expansion that didn’t come in as expected. Since these guys tend to concentrate their money in a small number of industries, they are prone to have exceptionally good streaks…and also precipitous falls. Berkowitz loaded up 74% of his Fairholme Fund in financial stocks as of February 28th, according to Morningstar. Heebner had 36% of his CGM Focus Fund in automotive equities at the end of 2010. These moves did not work out well for these well-respected managers. “Investors make a mistake when they judge stock pickers only on short-term performance.” Russell Kinnel, Director of Research, Morningstar.[3]

Special thanks to Dennis & Sue Wilson and to Cora & Bob Berkery for your referrals to help us find new clients.  Congratulations to all the graduates in June, too numerous to mention here. It doesn’t get much better than to see someone you love walk up and collect their diploma.

With the market dips in late May and early June, more buys were made for clients than at any other time in recent memory. With typically low volume in summer markets, uncertainty abroad, and a big shoving match in Congress coming up…why purchase now? Here are just a few reasons to consider that stocks may be heading higher: 1. Money in the bank or the US Treasury yields about 3% or less, 2. Many blue chip stocks and funds pay dividends of 3% or more, 3. Piles of cash in companies should lead to more jobs, 4. Lower price/earnings than last year and future estimates make for stock bargains, 5. Borrowing rates are historically very low and, 6. World and domestic economies are not shrinking…they are expanding. 

The day after Independence Day, it is not too late to shout one more ‘thank you’ to all of you out there who help protect our most precious gifts of freedom.

Today’s the day. 

Mitch Fisher


[1] LA Times, July 2, 2011 [2] CNET News, July 5, 2011 [3] ET Investment News, June 13, 2011