Understanding What Has Happened Recently With US Stocks

Asset Class Moves March 14, 2013

Stocks were 0.56 %, a new high.
Bonds were up 0.04%, still near YTD lows.
US Dollar was down -0.35 % versus a basket of world currencies, and down -0.40% versus the Euro
Asian and European stocks were up
Gold was up 0.20%
Oil was 0.36%

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Commentary:

I have not been writing much here the last several days because when you’re right, it’s annoying to keep saying: “I was right.  Remember what I said.  Yeah, that’s still right.”

And knock on wood, things have gone as anticipated – as prepared for.

However, sometimes, because of the great financial consequences, saying something is still worthwhile.

While stocks reached a new high and bonds are still trading near their YTD lows, looking deeper, beyond the surface of their price movements, to try to understand the magnitude and potential rationales for what has happened to the asset classes’ prices, continues to be of value at this point.

Look at the last 3 months of stock trading:

SP 500 3 month March 13 2013

In the last 3 months, there have only been two very brief times when stocks have temporarily dropped only 2%.  Even if people timed those 2 events perfectly, realizing the full differential (up and down), a nearly statistically impossible task to achieve, after considering the tax consequences and transaction costs, their after-tax gains would be minimal.

The Dow 30 are up 10 days in a row, a consecutive streak that has not been seen since 1996.

We’ve essentially experienced, after a long, 4-year bull market, a 3-month period where ANYONE who sold almost any group of stocks is now experiencing seller’s remorse.

Important to note:  While prices have continued to go up, the average daily trading volume has not gone up (Look at the volume table at the bottom of the image above).  If the number of average daily trades are similar, or lower, and prices are continuing to go up, then it is likely fewer stock owners are wanting to sell what they already own.  Stock owners appear to be holding and not selling in this time period – even though stocks are at all time highs.

To understand why this has happened, and to anticipate when I think it will end, you’ll have to read the other posts on this blog.  I am almost always concise and rarely redundant, so I choose not to repeat those ideas in this post.

– –

What Happened To Gold Today?

Both gold’s price per ounce and the gold ETF “GLD” were up today.

So, a casual observer may think, “Hmm, people must be buying more gold and hedging in that direction as stocks are achieving higher valuations.”

But that is not what happened today.

While gold was up 0.20% and GLD was up 0.01%, as a world asset, gold actually lost value today on the world stage because gold is denominated in US Dollars and the US Dollar lost -0.35%.  So, gold still lost comparative value to most world stock indices and currencies today – as it appears investors are still more bullish on stocks than gold in this time interval.

This is one reason why it is important to follow the daily valuation of the US Dollar – if you really want to understand (or attempt to correctly interpret and anticipate) how various asset classes are moving in comparative price.

From the perspective of most investors around the world, when denominated in foreign currencies, gold lost value today.

– –

Bonds also lost net value today with the US Dollar’s -0.35% drop, compared to bonds “increase” of only 0.04%.

– –

This stock market is a monster.  To give some perspective, here are the beginning-of-the-year major stock trading companies’ predictions for how high stocks would go this year:

SP 500 Predictions For 2013

At 1563, we are within 22 points of the predicted highs for the whole year, for 8 of the 10 predictions.

It took “discipline” (or stupidity) to not sell things at these terrific, high prices today.

– –

Disclaimer: These posts are not written by a professional or licensed financial advisor. There’s nothing for sale here. This is just a discussion forum. No one should make any decisions based on representations made on this informal blog. These posts are just one layperson’s opinions, concerns, and observations about asset classes – a part of larger, never-ending discussions. Any significant financial decisions should be discussed with at least a few trusted and experienced financial advisors before acting.

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