2011 Dow Jones Up

The Dow finished up for 2011 thanks in part to the makeup of the index. The stocks in the Down Jones Industrial Average contain only large U.S. companies. While financial companies make up a significant number of the stocks, their impact is limited because the Dow Jones Average is a price-weighted index. That means that higher priced stocks have more influence on the average than lower priced stocks.

Most financial stocks have very low share prices these days, and as a result, their performance doesn’t drag as heavily on the average. Bank of America was the worst performer in the Dow having lost 58.3 percent for the year.

The Dow Industrials finished up 5.5 percent for the year. That is three consecutive positive years for the Dow, although nobody is dancing in the streets over this year’s performance, where many components had flat or down years.

The top 5 Dow stocks for 2011 were McDonald’s (up 30.7%), IBM (up 25.3%), Pfizer (up 23.6%), Home Depot (up 19.9%) and Kraft Foods (up 18.6%).

2011 S&P 500 Down

For 2011, the S&P 500 Index finished down for the year, although it’s performance was essentially flat, down less than 0.1 percent for 2011.  Unlike the Dow average,t he SP500 index is weighted based upon each stock’s market capitalization. The dismal performance of the financial stocks included in the index have large market caps and weighed heavier, pulling the index down.

For example, IBM’s high share price (around $185 per share) means that it’s positive returns for the year count a lot toward the up side for the Dow versus Bank of America’s terrible performance being only a small impact thanks to its $5 a share price. On the S&P 500 Index, however, Bank of America’s $56 billion market cap gives it much more pull.

NASDAQ 2011 Performance Down

The Nasdaq Composite Index was also down for 2011. It finished the year down about 1.8 percent.

Other Stock Markets in 2011

International markets didn’t do as well as the U.S. In Europe, the growing Euro crisis has engulfed not only Greece and Ireland, but Italy and Spain as well. Britain’s main index, the FTSE dropped 5.6 percent for the year and the main German index, the DAX, was down approximately 15. That is its first down year since 2008.

Elsewhere, the Asian index, the Nikkei was down 17 percent.

For 2011 Gold was up 10.2 percent for the year (down from this summer’s +33 percent peak). Oil was up 8.2 percent for the year.

2011 Market Recap

So, what does the market performance for 2011 mean for investors?

Almost nothing.

The small gains and losses for the year hide the extreme volatility that took place during the year through bone-headed gridlock in Washington, particularly over raising the debt-ceiling, and the building financial crisis in Europe.

Overall, regular investors would be wise to take very little stock of how the markets overall performed during 2011. Instead, investors should focus on finding good companies with strong management since those are the only ones poised to benefit from what looks to be weak economic growth during 2012.

For American’s regular lives, the markets offer no real solution or problem to the ongoing economic issues. Recent economic data suggests that the economy might FINALLY be turning a corner, assuming the current my-party-is-more-important-than-the-country mentality in Washington can either be overcome, or sidelined by a nation that has grown largely disgusted with everything the comes out of the nation’s capital.

If jobs continue to get created and Congress doesn’t break the fragile economy, 2012 might see better investment performance, and more importantly, set the stage for real economic growth and investment performance in 2013.

Happy New Year, Everybody!

Related posts:

1. 2011 Stock Market Update Q3
2. Stock Market 4th Quarter Turn Around

Stock Market 2011 Results originally published at Finance Gourmet

Ironically, most investors are used to getting a so-called “Santa Claus” rally at the end of the year as money managers position their balance sheets and investments ahead of end of year reporting. However, this year, the problems in Europe, their affect on the Euro, and the potential collateral damage in the U.S. markets has kept investors from being in a merry mood.

As the year winds down, trading volume typically declines in the markets. Mutual funds, hedge fund managers and other money managers that are up for the year, sell everything and hold cash through the end of the year to lock in their gains.

Smaller investors, aware of the holidays, also position themselves to have only those investments they wish to hold for the long-term. That not only frees them up from having to watch the markets while at Great Aunt Margret’s house, it also prevents any surprise capital-losses or capital-gains that might upset carefully planned tax strategies.

The final two weeks of the year may produce enough of a rally to push the S&P 500 into positive territory, but it won’t be enough to make anything more than single digits show up in the 2011 column for all of those investor marketing materials and mutual fund prospectuses.

As anyone who lived through it (all of us) can tell you, 2011 doesn’t deserve to go down as a “good year” and it most certainly won’t look that way on paper when the math is all said and done.

Mutual Fund Returns 2011

I thought it would be interesting to see how some of the big mutual funds were doing in light of the single-digit change (positive or negative) likely coming for the S&P 500 index. Keep in mind that many of these funds do not use the S&P500 for their benchmark. However, investors are free to compare their investment returns to whatever they wish, and I always remember that I can have a low-expense S&P500 Index based ETF for much less than any mutual fund, so if they better at least make me feel good about it.

Unless otherwise specified, all funds listed are the “main” share class. Check the ticker symbol listed if you are really interested.

Year to Date Returns as of Market Close Friday, December 16, 2011 according to Morningstar.com.

• PIMCO Total Return Fund (PTTRX)  +3.68%
• Fidelity Contrafund (FCNTX)   -2.47%
• American Funds Growth Fund of America (AGTHX)  -7.19%
• American Funds Capital Income Builder (CAIBX)  +0.28%
• American Funds Income Fund of America (AMECX)  +2.94%
• Vanguard 500 Index Fund (VFIAX)  -1.07%
• Dodge & Cox International Stock Fund (DODFX)  -18.62%
• Dodge & Cox Stock Fund (DODGX)  -6.87%

As you can see, some funds are right there and some are getting hammered. International funds, particularly those with heavy investments in Europe, are understandably volatile. Bond funds are less volatile, although many are not in positive territory either. It’s hard to make much money in bonds when prices are held hostage by a zero percent interest Fed policy.

This year wasn’t necessarily pretty, but considering the state of the economy for much of the year and the slow improvements in the U.S. job market, there really isn’t much reason to think the stock market would react any differently.

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1. Standard Deduction 2011 and 2011 Tax Brackets
2. 2011 Stock Market Update Q3

S&P 500 Down for Year 2011 originally published at Finance Gourmet

The stock markets ticked up today on a little bit more good economic news. Following recent good labor market news and the Fed holding interest rates at zero, comes statistics showing last weeks jobless claims were at a 3 1/2 year low.

Also, several large companies reported good results.

Furthermore, two regional business surveys from the Federal Reserve showed better than expected growth for December.

Finally, the general business conditions index for New York was higher again showing an increase in both new orders and hiring. That’s yet more good news for the job market.

We’ll have new articles about end of year tax strategies, financial planning for those in extreme circumstances, and more in the coming days.

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Market Up on Good Economic News originally published at Finance Gourmet

Unfortunately, most people who invest in the S&P 500 Index do so in the same way the index is calculated, capitalization-weighted. That means that you buy more of the bigger companies and less of the smaller ones. There are some index funds and ETFs that allow you to invest in the S&P 500 Equal Weighted Index.

There are actually numerous ways in which this was not a lost decade for investors, most importantly, if you KEPT INVESTING, which is what both savvy and not-so savvy investors did when they did not turn off their 401k contributions through this turbulent decade. Those investors could have much more money today than the beginning of the decade and are primed for a much bigger recovery when the U.S. economy finally pulls out of its doldrums and moves ahead.

More on this later…

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S&P 500 Equal Weight Index Not a Lost Decade originally published at Finance Gourmet

Of course, there is a long way to go until the end of the year and pressing economic matters like the debt crisis in Europe, the joint budget cutting committee and an unemployment rate that won’t go down are still to be resolved.

For the time being, non-day trading investors should remember that short-term movements in the stock market are notoriously difficult to predict.

End of Year Portfolio Rebalancing

Many experts recommend rebalancing your long-term portfolios like retirement accounts (IRAs, 401k, and other retirement plans) once a year. Traditionally, many people do it near the end of the year. If you haven’t rebalanced your portfolio since last year, it’s a good time to start thinking about doing it soon.

Related posts:

1. 2011 Stock Market Update Q3
2. Stock Market 2011 Results

Stock Market 4th Quarter Turn Around originally published at Finance Gourmet

The stock market took a huge dive starting July 21st and has never pulled itself back up. For those of you looking for the culprit, let me help you out. The debt ceiling deal was reached at the end of July, which means the 21st was pretty much the height of the shenanigans. The markets have had no truly good news since to pull themselves back up by.

Outlook for 2011 4th Quarter Stock Market

Don’t expect the news cycle to save the stock market during the fourth quarter of 2011. In the 4th quarter, we’ll see increasingly competitive rhetoric building in the Republican Presidential primary, the product of the debt ceiling committee, which most are projecting will fail, and the start of the holiday shopping season, which will likely get spun in the mainstream media as a disaster early on, no matter how it ends up going in the end. Furthermore, the Fed is out of the picture having approved its latest financial stability plan, “the twist.” And, finally, the European debt crisis has no indication that there will be any sort of grand resolution by year end.

In other words, there is not likely to be any sort of overall good news politically, economically or anecdotally. In fact, most of the news around the stock market will likely be bad news, not good news.

So, what will push the stock market up in 4th quarter of 2011?

The best answer is probably nothing. The markets may move in an upward trend over the last three months of the year if investors starting looking ahead to 2012 and liking what they see. (Remember, the stock market is a leading indicator.)

The other possible savior may come from earnings reports. With the third quarter over, companies will be reporting their 3rd quarter earnings in the coming months. If a sufficient number of companies are able to report good enough earnings, coupled with positive outlooks for next year, the markets could see a significant boost for the end of 2011. In other words, a Santa Claus rally is not out of the question. However, if this market is going to go up for the rest of 2011, it’s going to have to do it on its own.

Stock Market Outlook for 2012

How does the stock market look for 2012? That question isn’t as hard to answer as it may seem.

The news cycle has already punished the stock market, and it will continue to do so for the foreseeable future. The eventual Republican Presidential nominee will do their best to paint the economy as an unmitigated disaster and the short-term impact of billions of dollars of government spending cuts may just make that a self-fulfilling prophecy. (Don’t forget, tax-cuts and lower regulation are not short-term economic boosters, those things take time to work their way into the economy. The impact of government spending, or lack thereof, has an immediate impact, even if the full repercussions aren’t felt for many years.)

In other words, people aren’t likely to be in a big investing mood. On the other hand, most trades on Wall Street are computers talking to other computers and they might start to like what they see.

The U.S economy has been mired in a recession for longer than is typical. The boom (some say bubble) coming out of Silicon Valley may well be the last spark that is needed to push the economy forward and most economists do expect some growth next year, no matter how weak.

In other words, 2012 or 2013 is the start of the next bull market. Long-term investors may as well get in now, or wait until after the stink from the Congressional Joint Select Committee failure clears the air. Either way, buying low means buying when things sound bad but the future looks like the only way is up.

If your investing horizon is longer than the next 12 months, that time is now.

Disclaimer: This is not an offer to buy or sell securities. This is not specific investment advice and should not be relied upon for you investing decisions. Consult a financial professional for financial advice specific to your situation. Consult a tax professional for specific tax advice.

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1. January 2009 Stock Market Update
2. Stock Market 2011 Results

2011 Stock Market Update Q3 originally published at Finance Gourmet

Next came the downgrade of US debt by Standard and Poors. Make no mistake, this was a political, public relations ploy. The original S&P U.S. downgrade played up a very high percentage of debt to GDP, and even gave a number at which things would be "good enough" for the United States debt to not get a downgrade. However, when a math error that was big enough to move the number well into "good enough" territory was discovered, S&P downgraded U.S. bonds anyway, making many wonder what S&P bond ratings are even based on.

The company may have damaged its own reputation more than it did the debt of the United States of America. Indeed, the company was so late to downgrade AAA-rated mortgage securities that investors had already lost most of their investment and was so slow to downgrade the debt of Greece that the markets were down significantly before S&P woke up and issued their downgrade. But, now, however, they seem to be chomping at the bit to downgrade U.S. debt early. In fact, none of the other major ratings agencies issued a downgrade.

It seems that S&P wanted to downgrade the debt as a way to institute some sort of power over the U.S. government by chastising them for not reducing the deficit more. Along the way, it made itself the laughing stock of the investing world. How can one rationally say that the U.S. is more likely to default today on its debts than it was one month ago BEFORE Congress was able to pull its highly-dysfunctional state together long enough to come up with ANY plan at all?

Although the markets swooned over 400 points down on Monday, that can be attributed more to continuing uncertainty (of which the S&P downgrade was a part) than to investors taking the S&P seriously. In fact, U.S. Treasury prices actually ROSE in the wake of the downgrade. By Tuesday afternoon, the markets were up over 400 points, essentially erasing the big drop on Monday, in a continuation of a volatile summer where investors are asking whether the economy is slowly recovering or the economy is slowly heading for a double-dip recession. It seems the questions investors are asking have nothing to do with S&P’s attempt at a big splash.

Apple Biggest Stock In World – Briefly

For a short period of time on Tuesday, Apple Inc. became the most valuable company in the world when it’s market cap rose to $341.5 billion to Exxon’s $341.4 billion. However Apple shares slipped back under Exxon shares later in the day. Whether Apple takes over the number one spot for more than just part of a day will depend in large part on the price of oil and how much of premium investors are willing to pay for Apple’s astronomic growth rate.

Federal Reserve

Also on Tuesday, the Federal Reserve announced that it intended to keep interest rates near zero for at least another two years in an effort to remove rising interest rates from the list of potential concerns about the economy.

That’s good news for homeowners with adjustable rate mortgages (ARMs) who may have been worried about rising ARM interest rates pushing up their interest payments. Although most mortgages are tied to a 10-year interest rate index, ultra-low short-term rates will make big upward movements mid-term bond indexes unlikely. If you can make your mortgage payments today, chances are you’ll be able to make them through the next year, and maybe even the year after that.

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Crazy Week for Economy and Investors originally published at Finance Gourmet

Apple reported revenue of $26.7 billion for its first-quarter which ended on December 25th. (The company uses a fiscal year for its earnings and reporting.) That’s earnings of $6 billion, or 6.43 cents per share, which is up 78 percent from a year ago.

FactSet Research said analysts were predicting earnings of around $5.42 per share and revenue of $24.4 billion.

Not coincidentally, all of this good news comes the day after the company announced that CEO Steve Jobs was taking a medical leave of absence. Apple stock traded ended the day down 2.25 percent at $340.65. Trading in the stock was halted after hours. When it resumed, shares were up in after-hours trading.

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2. Apple Stock Good Investment or Passing Fad

Apple Earnings Way Up for Quarter originally published at Finance Gourmet

The company continues to use share buybacks as the primary method to "return money to shareholders." The company’s third-quarter earnings announcement notes that the company, "returned $4.5 billion to shareholders through $0.8 billion in dividends and $3.7 billion of share repurchases," a ratio of approximately 1 to 46.

However, the company did note that its free cash flow was down $300 million to $7.6 billion for the first nine months of the year.

Coming up later today, Apple reports its earnings. The company does not pay dividends at all, preferring to build an enormous hoard of cash for some future purpose.

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IBM Earnings Up originally published at Finance Gourmet

People are always asking me if I think certain stocks are a good investment. There is a flaw in the question, but we’ll get to that in a minute. Right now, let’s get right to the real question people are always asking me these days.

Is Apple Stock a good investment?

What people mean when they ask me that is not whether or not Apple is a good investment, but whether or not I think Apple stock will go up a lot … soon … really soon. They also want to know whether or not I think Apple stock will go down, but that is not why they ask the question. They want to buy Apple stock because it sounds like a smart investment, or because it feels like a smart investment.

Of course, none of this has anything to do with an in-depth analysis of the company’s stock and it’s prospects for future growth and earnings. It’s all about buzz. They heard about the iPhone and it’s a big hit! They heard about the iPad and it’s a big hit! They heard about the NEW iPhone, and it’s a big hit! Now, they hear that Apple’s earnings are higher than Microsoft’s earnings and a new iPhone is coming to Verizon, and…

Can I PLEASE buy Apple Stock and become a multi-millionaire?

Is Apple A Buy?

Whether or not Apple stock is a good investment FOR YOU has a lot more to do with you than it does with Apple.

Where is this money to buy AAPL coming from?

What are you planning on using this money for?

When are you planning on needing the money?

What is the purpose of investing in Apple stock in your own portfolio?

– I get a lot of blank stares.

I know you want to go buy some shares of Apple right away before "it’s too late," so I’ll get right to the point.

First, investing in stocks is usually a bad idea for money that you need or plan on using sometime in the near future. Even Apple stock goes down. Sometimes it goes down because of the company, and sometimes it goes down for reasons completely unrelated to Apple and its iPhones and iPads.

• Do you remember all of the times in the last year where the company reported that iPhone sales or iPad sales or iPod sales were down?
• Do you remember all of the times during the last year when analysts were negative on Apple’s financials and worried about the strength of their sales?
• Do you remember all of those times in the past year when the press and media were running those negative stories about Apple and all of those negative reports about iPads, iPhones, and iPods?

If you pay a lot of attention and have a really good memory, you might recall the whole Antenna Gate thing where there were ongoing reports of problems with the iPhone losing signal strength when people held it with their hands.

If you can remember anything else, you might be confusing another company, because other than the problem with the iPhone antenna there has been nothing but good news about Apple from the company, from technology analysts, and from the news media.

At an investor level, there hasn’t been a single downgrade of Apple since November 2009, and that was from Strong Buy to Buy. Not exactly a damning indictment.

In other words, there has been nothing but good new from Apple for the past year.

The point?

In the short-term, there is no way of knowing how the market will react to any bad news from Apple if there is any. It is also important to see that Apple doing great things is not new news. There are already a lot of investors in the stock expecting great things, not from the iPad, or the iPhone 4, those great results are already very much reflected in the price of the stock. The investors in Apple today are putting their money on great things happening with the iPad 2 and the iPhone 5. If you believe that too, then Apple is a good investment for you over a 2-year or longer period.

If you are looking at anything shorter than that, consider this 52-week chart of Apple’s stock price. Notice that there are plenty of times where buying Apple stock would have been a loss if you had to sell too soon. There’s a three month period beginning with the peak in June where your investment would have been nothing more than a capital loss deduction. If you bought in May it would have been five months before you made more than pennies on your investment. Even Apple stock is a tricky buy for the short-term.

Before you buy, fire up any one of the free stock charts online and take a look at how the stock price moves over weeks, months, and years so there are no surprises.

In other words, if you have money in a brokerage account sitting in cash, or if you have some other stocks you aren’t feeling as strong about, you could do a lot worse than AAPL. But, if you’re taking the $1,000 cushion out of your savings account to grab a handful of shares, don’t bother.

Remember if you invested $1,000 in Apple — or any other stock — and it went up 25 percent, you would make a whopping $250. That’s a good start for money that you have no plans for other than investing. It’s not worth the risk if you need that money to pay for Spring tuition this January.

Finally, before you get too excited about the guaranteed profit from owning Apple stock that you might be imagining, ask yourself one very hard question. Although it isn’t nice to think about, nice isn’t how investors profit. Steve Jobs is getting older and has had some major health issues. Deliberately or not, he has been positioned as more than just the CEO of Apple. If he were to die or need to step down from his position at Apple, what do you expect to happen to the stock price?

It’s a real risk, and one that should be considered by any serious investor.

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Apple Stock Good Investment or Passing Fad originally published at Finance Gourmet