ALL SEASON INVESTING WEEKLY 05-20-2012 | Markets Fell For the Third Week on Concerns About Greek Exit From Euro

Top Stories Last Week

  • Markets Fell For the Third Week on Concerns about Greek Exit

U.S. stocks fell again last week as concern about Greece’s possible exit from the euro zone kept investors on edge. After the failed attempts to form a new government, the Greek will hold another election in mid June. The anti-austerity parties may gain more seats in the new election. That will raise the possibility of Greek’s exit from Euro, whose impacts on the European banking system and economies are highly unpredictable. The Dow Jones Industrial Average closed the week off 3.5%. The S&P 500 Index shed 4.3% and the Nasdaq Composite Index ended the week down 5.3%.

  • Moody’s Downgraded 16 Spanish Banks

Moody’s Investor Service downgraded 16 Spanish banks on Thursday, including Banco Santander, the euro zone’s largest bank, citing a recessionary economy and the government’s reduced ability to support troubled banks. All the banks’ long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts. Santander was cut by three notches to A3 from Aa3. Spanish ten-year government bonds are traded at 6.2%, almost 5% higher than German Bunds.

  • US Inflation Was Flat in April

Inflation was flat, as declining energy prices offset minor increases in other categories. The U.S. Consumer Price Index, a key measure of inflation, showed overall, consumer prices were unchanged from March to April. Energy and utility prices were the biggest factor keeping inflation tame, falling 1.7% in the month.  This confirms the Fed’s forecast and helps the Fed keep its dovish stand until 2014.

  • Retail Sales Rose in April at the Slowest Pace in 2012

Retail sales rose in April at the slowest pace of the year as US consumers took a break from a shopping spree induced by unseasonably warm weather in prior months.  The 0.1 percent gain followed a 0.7 percent increase in March. The April number was in line with the median forecast.

  • US Housing Starts Bettered Expectation

U.S. home builders broke ground on more homes last month, evidence that the housing market is slowly healing. The Commerce Department said Wednesday that builders started building at a seasonally adjusted annual pace of 717K homes in April. That’s 2.6 percent more than March’s total. Construction rose for both single-family homes and apartments.

  • Euro-zone Economy Had Zero Growth in the First Quarter

Eurozone GDP growth came in at 0.0%. That’s better than median estimates, which were calling for a slight contraction. Stronger growth in Germany was enough to help the European Union and the 17-nation eurozone avoid falling into recession for the second time since 2009 during the first three months of this year. Germany managed to grow its GDP by 0.5% in the first quarter of 2012.

  • Facebook IPO

Facebook raised in excess of $18.4 billion in its initial public offering pricing at $38/share. It sold more than 421.2 million shares.  The debut was marred by technical trading issues at Nasdaq as the market digested the largest tech IPO in history. Traders had to wait for hours to get their confirmations back. The shares ended up 23 cents, at $38.23 on Friday.

Top Stories to Watch This Week

  • G8 Leaders Want a “Strong and Cohesive” Eurozone with Greece

During the G8 summit in Camp David this weekend, G8 leaders have expressed hope that debt-stricken Greece will remain in the eurozone and vowed to “take all necessary steps” to fight the deepening economic turmoil in Europe. They welcomed the discussions in Europe to balance debt reduction with measures to support growth. The leaders also stressed the importance of a “strong and cohesive” eurozone and reaffirmed their interest in Greece staying in eurozone while keeping its commitments to reduce its deficits.

  • US Home Sales

Analysts expect the new home sales and existing home sales to improve slightly in April by 2.1 percent and 3.1 percent, respectively. The battered housing markets may show signs of slow recovery.

  • Risks on Spanish Banks

Last week, the Spanish government told the banks to add a $39 billion to cover potential losses on property loans and announced an independent audit on the banks’ balance sheets.  Any developments will have impacts on the markets.

Weekly Performance Summary

All the portfolios declined in the week as results of negative performance across all the risk assets, marking the worst weekly performance for the year.

Table 1: ETF Performance

Asset Class Return Last Week Return MTD Return YTD Return
Equities
SPY US Large Cap -4.33% -7.24% 3.83%
IWM US Small Cap -5.34% -8.32% 1.59%
EFA Developed Market Equity -5.96% -10.49% -2.87%
VWO Emerging Market Equity -6.38% -11.40% -1.31%
Dividend Assets
IYR US REIT -6.56% -6.40% 6.21%
AMJ US Energy Master Trust -5.07% -7.85% -4.31%
Commodities
GLD Gold 0.64% -4.53% 1.68%
GSG Commodity -2.14% -8.86% -4.21%
Bonds
HYG US High Yield -3.55% -3.42% 0.23%
AGG US Bond 0.19% 0.57% 1.62%
TIP US Treasury Inflation Indexed Bond 0.95% 1.28% 3.93%
IEF US Treasury Bond 0.85% 1.73% 2.37%
TLT US Long Term Treasury Bond 3.93% 6.12% 3.43%
SHY US Short Term Bond -0.07% -0.04% 0.02%

Table 2: Portfolio Performance

Portfolio Solutions WTD MTD
(1 day delay)
YTD
(1 day delay)
1-YR
(as of 12/11)
5-YR
(as of 12/11)
10-YR
(as of 12/11)
Aggressive -4.5% -7.3% 0.4% 12.4% 16.4% 16.1%
Moderate -3.6% -5.6% 0.8% 12.4% 14.8% 14.4%
Conservative -2.6% -3.9% 1.4% 12.5% 13.7% 12.8%
Defensive -1.5% -1.8% 2.1% 13.2% 12.5% 11.1%
Concentrated Portfolio -5.4% -6.8% -0.3% 12.1% 19.1% 19.3%
S&P 500 Index -4.3% -7.2% 3.8% 2.0% -0.3% 2.9%
Barclays Bond Index 0.2% 0.6% 1.6% 10.3% 6.9% 5.8%
CPI Inflation 3.2% 2.3% 2.5%

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