Market Insights

The Federal Reserve’s Outlook: Less Optimistic

Not wanting to say that things look worse, the Fed is suggesting that the recovery is less than expected.

 

“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected”, according to last week’s Fed statement.

 

What’s causing the recovery to progress “more slowly”?  No answer.  The Fed “doesn’t have a precise read on why this slower pace of growth is persisting”. 

 

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Junk Bonds: Time to Buy?

“Investors weren’t just walking away from junk bond funds last week. They ran”. (Barrons)

And they ran fast. As of last Wednesday, high-yield (junk) bond funds were hit with the largest weekly outflows on record (with investors pulling $484.2 million from ETFs, and $3.4 billion from mutual funds).

And it wasn’t just last week. Investors have been running from high-yield funds for the past four consecutive weeks (it was just a couple of months ago that junk bond funds saw record inflows).

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Greece Looks Bad...Does the U.S. Look Worse?

Greece introduced the world to drama. And the country has taken center stage in the euro zone sovereign debt drama yet again.

Last year’s Greek bail-out was evidently insufficient…next month European Union officials meet to decide on another rescue plan. And last week Standard & Poor’s cut the country’s debt rating to CCC… making it the developed world’s lowest rated sovereign debt. Beyond that, the European Commission expects the country’s debt burden to amount to almost 160% of GDP this year.

Given that, the question becomes: is the U.S. worse off?

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Is Best Buy a Buy?

Best Buy, the world’s largest consumer electronics retailer, managed to beat expectations in last week’s earnings report…meaning the bottom line numbers didn’t fall as much as anticipated. And then shares saw their highest climb in 15 months (and ended the week up 9%). So is it time to buy?

Short answer: no. Slightly longer answer: the company is “a broken story. Not as bad as expected is about the best thing I can say about Best Buy”, according to CNBC’s Guy Adami.

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Research in Motion: Oversold, But I'm Not Buying

“Control + Alt + Delete”. That’s what one downgrade report had to say about Research in Motion’s earnings report.

Last week I recommended avoiding the tech sector for the time being. Nothing has
changed since then. I would continue to steer clear of tech, and that position was reinforced by the sector’s performance last week (down -1.2%). But as tech struggled, Research in Motion (RIMM) tanked.

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Treasuries: Still Not a Buy

The U.S. is the largest issuer of debt. The Federal Reserve is the largest holder of our government’s debt… and China is the second largest. While the Fed plans to wind down its purchases of Treasuries through its quantitative easing at the end of this month (at least that’s what’s reported), China has been a net seller of U.S. government debt for the past five months (though there is some debate about whether they are routing purchases elsewhere).

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Tech: A Sector to Avoid...At Least Today

The rumors continue to swirl about the possibility of a speculative tech bubble, with what is seen as a crowded market for internet IPOs. But bubble or no bubble, the tech sector isn’t looking good these days.

As of the close on Friday, tech is negative for the year. The Nasdaq Composite Index is down -.34% year-to-date, while the Dow is up 4.42%, and the S&P 500 is up 1.93%.

And tech sector is lagging behind other sectors, down -.2% year-to-date (only financials have seen a greater decline so far this year).

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A Guarantee That is Not Risk-Free

A reassuring name does not make an investment risk-free. That is why FINRA and the SEC have issued a new warning about structured notes with principal protection.

The market for these products has grown in recent years, and that’s not really a good thing. Terms like “principal protection”, “absolute return” and “capital guarantee” are meant to give investors a sense of security. But, as the investor alert cautions, these products are absolutely not risk-free.

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Now the Double Dip in Housing is Official

A few weeks ago, I wrote that home prices had double-dipped. And last week, that was officially confirmed.

The S&P Case-Schiller home price index fell 3.6% in March, the eighth consecutive monthly decline. And the report “is marked by the confirmation of a double dip in home prices across much of the nation”.

The news was already bad a few weeks ago, when Clear Capital reported that “prices have double-dipped…below prior lows experienced in 2009”.

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More Bad News For Financials

 

More bad news for financials: Moody’s Investors Services placed Bank of America (down 15% year-to-date), Citigroup (down 15.75% year-to-date) and Wells Fargo (down 13% year-to-date) under review last week. Banks ratings were boosted following government bailouts, and now the agency will review whether “these ratings should be adjusted to remove this unusual uplift and include only
pre-crisis levels of government support”.

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