October Downturn

After hitting rally highs on October 19, the Nasdaq Composite and the S&P 500 Indexes turned down dramatically, falling seven of the last nine trading days of October. This downturn has not reached the point of calling it a correction, defined as a drop of 10%, but it did produce the first monthly loss for the market since this rally began in March. Several economic reports this week played into the downturn.

New home sales fell 3.6% in September, contrary to economists’ expectations of a seventh monthly increase in a row. Due to the coming November 30 expiration of the $8,000 first-time home buyer tax credit, potential home buyers may be rethinking their plans. Legislators are working now to renew the credit.

The Consumer Conference Board’s Consumer Confidence Index and the Reuters/University of Michigan Consumer Sentiment Index both declined in October, although the Nielsen Global Consumer Confidence Survey reported that their U.S. reading had risen since their last survey in July.

The only good news this week was that the GDP rose 3.5% in the third quarter, and it sparked a sizeable market rebound on Thursday, October 29.

However, the Labor Department reported Friday morning, October 30, that consumer spending fell and personal income was flat in September, which worried investors enough to undo Thursday’s rebound.

Even though the economy expanded in the third quarter, it is by no means out of the woods. Consumer spending is the mainstay of the U.S. economy and is directly affected by consumer sentiment, which in turn is affected by the current high unemployment rate, now at 9.8%, and which economists expect to continue to rise as high as 10.5% through the middle of next year. The recovery is likely to be weak and slow until the jobs picture brightens.

Remember though, that consumer sentiment is largely a trailing indicator, meaning that it reflects more on what has happened in the past than what will happen in the future, making it a favorite indicator for contrarian investors.

Posted 10/31/09 9:07am ET in Economy, Market | Permalink | Comments (0)

Fundranker Upturns October Update

Fundranker’s Top Eight Model Portfolio gained ground again in September, tying its seven-months-in-a-row record from May, 2002. The table below shows Fundranker’s multi-month gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

Fundranker’s current seven-month upturn of 42.376% places third in the list by percentage gain. Fundranker is up again so far in October, so perhaps we'll get to add another month to this upturn to break our seven-month record.

Over all the upturns, Fundranker now has an average gain of 22.223%; the S&P 500 gained only 11.994% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker now has an average gain of 17.099%; the Nasdaq Composite gained only 13.646% on average. See our Fundranker Upturns September Update post for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 indexes.

Posted 10/23/09 2:43pm ET in Fundranker, Market | Permalink | Comments (0)