D3 Business Update:
Besides our daily focus on portfolio management, we are also reviewing estate planning documents for our family office clients. If we have a copy of your documents, they will be loaded up in the client portal. Later on in the month we will be emailing or mailing you the summary of our review. If we are missing any documents, we will be calling to see if you would like us to review them.
Don just returned from a NAPFA (fee only financial planners) conference teaching two classes; one on behavioral finance and one on how to evaluate Exchange Traded Funds. Adam will be going to the Wharton graduate school at the University of Pennsylvania, to finish up the education requirements for his CIMA designation (Certified Investment Management Analyst).
D3 Investment Insight:
We said last month that, “The world of investing is being affected more by politics than investment fundamentals. As a result we can anticipate market volatility to continue and will be driven by the most recent positive or negative political headline.” Just like 2000 years ago, the headlines surrounding Greece may make it the most important country in the world for the next month or so. The headlines that will affect the markets the most will be whether or not Greece stays in the European Union and the report from the U.S. Super Committee.
As a reminder, the U.S. Super Committee is the select group from Congress that will determine the $1.2 trillion in spending cuts agreed to by Congress and the President during the debt ceiling fiasco this past August. If U.S. Super Committee doesn’t agree on where to make the cuts, 50% will come from military spending and 50% will come from the entitlement spending (Social Security and Medicare). Black Friday, after Thanksgiving this year, may reflect how the market perceives the outcome.
From a fundamental investment perspective, corporate earnings continue to be stellar. Of the 409 (82%) S&P 500 companies who have reported third quarter earnings, 71% beat estimates, 11% were in-line, and 19% were below estimates. The blended earnings growth rate for the S&P 500 for the fourth quarter in 2011 is currently at 10.9%. (Data provided by Thomson Reuters). Not bad for an economy that grew at a 2.5% rate in the third quarter.
Daily volatility since August is nearly as high as it was in the fourth quarter of 2008. The first and last day of October, the market declined over 2%, but during the month, the S&P 500 increase in value by 10.8%.
We waited to send out this letter until the Labor Department reported the employment situation this morning. Job growth is occurring (80,000 new jobs last month) but at the same slow, agonizing pace, that does not reduce the unemployment rate significantly. U.S. Recession fears are receding due to the recent string of slightly stronger economic data.
D3 Investment Outlook:
Although the headlines were mixed during October, the market rallied significantly (best monthly gains in 20 years) and broke out of a trading range. From a longer term, relative value perspective, equities still represent value (assuming no recession). Volatility will continue to be high. Some European governments are going to fail. A key date to be aware of is November 23rd, the date the U.S. Super Committee reports.
D3 Investment Strategy:
Because we anticipate high volatility through year end; we are looking at some alternative investments Don was introduced to at the NAPFA conference. These investments increase in value when volatility increases and may act as a hedge for equity exposure. We are conducting our due diligence on these products.
Due to the relative cash flow advantage of stocks versus bonds, and the continued strong earnings capability of U.S. companies in this slow growth economy, we continue to invest in U.S. equities. We continue to see value in World Bond Funds that focus on risk management. .
Our most important daily task is our continuous monitoring your investments, taking actions consistent with your financial plans, rebalancing to your target strategic asset allocation and replacing underperforming mutual funds. We have completed our review of 3rd quarter mutual fund performance numbers and will be replacing some funds over the next two months.
As a reminder, our “thank you’ event in Downers Grove is on November 19th at Emmett’s from 6:00-9:00. Patty will be calling you next week to confirm your attendance.
Please feel free to tell anyone you know with a financial question, that your D3 Financial Counselors are FIVE STAR advisors. As always, thank you for your business.
Donald D. Duncan MBA CFA™ CPA CFP® Adam Glassberg CFP®
Michael Meyers MBA CFP® Patty Shipinski, Office Manager
Neil Lefort MBA J.D. CPA Ryan Pace, Junior Financial Planner