Opinion

John Wasik

Nine reasons to smile about the stock market

Feb 25, 2013 21:18 UTC

CHICAGO, Feb 25 (Reuters) – Over the past few months, it has
been much easier to make a case that widespread financial
anxiety is easing, although trying to quantify the upsurge can
be like trying to catch a frog. As soon as you grab for it, it
jumps.

At the beginning of last year, investors were grouchy about
nearly everything and kept putting money into bond funds, while
the stock market slipped. Then numerous economic indicators
started pointing north and sour global financial news became
less prevalent, and the tide turned as money started flowing out
of bonds and into stocks.

As financial anxiety eases, investors feel they can take
more risk and worry less about the worst-case scenario. This is
good news for the overall economic picture in the United States.

While there are sure to be bumps in coming months, the
prevailing trend is for a sluggish recovery in the United States
and abroad and the current stock rally – the S&P 500 index is up
more than 6 percent year to date through Feb. 22 – might
continue to be bolstered by the Fed’s easing policy.

For sure, it seems brighter days lie ahead and here is why:

* The tide seems to be turning on the major fears: The euro
zone probably won’t collapse, the U.S. is continuing to rebound
and hyperinflation is not around the corner. Meager inflation
and interest rates combined with less global anxiety will give
legs to the current stock rally. It’s as if the mass psychology
of pessimism has turned a corner.

Avoid the herd mentality on growth vs. value stocks

Feb 22, 2013 14:17 UTC

CHICAGO, Feb 22 (Reuters) – In the mercurial world of stock
market trends, predicting whether the market is favoring growth
or value styles is an either/or situation.

Sometimes growth stocks, which tend to produce consistently
higher earnings, dominate. Then they fall out of favor, as value
stocks, bought at bargain prices relative to their potential
market value, take the limelight.

The nature of the beast in the growth vs. value tug of war
is that when big money managers conclude that growth stocks may
be getting overpriced then it is time to look for bargains.
Since institutions tend to move in a herd, a switch en masse
happens almost simultaneously and billions flow into
bargain-priced stocks over a period of months. Sometimes the
buying lasts for years.

Rooting out risk in your bond portfolio

Feb 19, 2013 17:33 UTC

CHICAGO (Reuters) – When U.S. Federal Reserve governors start talking about “overheating episodes in credit markets,” as did Jeremy Stein in a February 7 speech in St. Louis, it is time to prick up your ears.

Stein warned that in an attempt to “reach for yield,” investors have been taking on ever-greater risks in vehicles like high-yield corporate “junk” bonds, insurance products and real estate investment trusts. And that means that even though most of the drama in recent weeks has been focused on a bullish stock market – the S&P 500 Index is up nearly 7 percent year-to-date through February 15 – you need to pay even closer attention to bonds.

Of course, yield-hungry bond investors are taking risks because they have been frustrated since 2008, when the Federal Reserve slashed interest rates to practically nothing. The Fed is expected to keep rates low through 2014.

Obama gives green energy funds a jump-start

Feb 15, 2013 16:06 UTC

CHICAGO, Feb 15 (Reuters) – In the wake of yet another
monster storm in the Northeastern U.S., we are once again
reminded of the need to address climate change, which is like a
Grendel that keeps coming out of its cave to ravage us with
increasingly violent weather.

The President outlined new initiatives on climate change in
the State of the Union address on Tuesday. If they gain traction
in Washington, it will give a boost to stocks and
exchange-traded funds that invest in alternative energy and
global warming solutions.

“If Congress won’t act soon to protect future generations, I
will,” President Obama said. “I will direct my Cabinet to come
up with executive actions we can take, now and in the future, to
reduce pollution, prepare our communities for the consequences
of climate change, and speed the transition to more sustainable
sources of energy,”

Betting on Bear funds 2013 may be hazardous to your wealth

Feb 11, 2013 21:12 UTC

CHICAGO (Reuters) – There is such a thing as being too cautious – betting on fear to such an extent that it derails your portfolio.

But if you are pessimistic about economic prospects in 2013 and thinking of investing in some bearish funds, this strategy could be hazardous to your wealth. You should consider yourself forewarned by what happened in 2012 with funds that embraced an aggressive bearish strategy: They were mauled.

Take the iPath S&P 500 VIX ST Futures A ETN, which was one the most hotly traded funds in 2012, according the Top 20 list of average daily trading volume compiled by trade newspaper Investment News. This specialized fund is an exchange-traded note – a publicly traded instrument issued by a bank – which gains when volatility-linked futures contracts soar in price. A short-term measure of investor anxiety, these funds make sense when the market is topsy-turvy, but not in a bull rally. Last year, the iPath note lost 78 percent.

COLUMN: Battling the unknowns of currency devaluation

Feb 8, 2013 18:01 UTC

CHICAGO (Reuters) – Owning a truly globalized portfolio means investing in both developed and emerging markets, but figuring out the right mix gets complicated when you consider currency risk.

In just the past few weeks, a new Japanese stimulus policy that has been easing the relative value of the yen is the latest thing upsetting global trade.

More countries may soon get into the currency devaluation game, too. The Bank of England, in trying to avert another recession, may adopt U.S. Federal Reserve-style quantitative easing policy moves to jump-start the British economy. The pound has already fallen some 3 percent against the dollar in 2013 in anticipation of that move, according to BMO Private Bank.

Battling the unknowns of currency devaluation

Feb 8, 2013 17:58 UTC

CHICAGO, Feb 8 (Reuters) – Owning a truly globalized
portfolio means investing in both developed and emerging
markets, but figuring out the right mix gets complicated when
you consider currency risk.

In just the past few weeks, a new Japanese stimulus policy
that has been easing the relative value of the yen is the latest
thing upsetting global trade.

More countries may soon get into the currency devaluation
game, too. The Bank of England, in trying to avert another
recession, may adopt U.S. Federal Reserve-style quantitative
easing policy moves to jump-start the British economy. The pound
has already fallen some 3 percent against the dollar in 2013 in
anticipation of that move, according to BMO Private Bank.

With Dow breaking 14,000, what should you do?

Feb 4, 2013 17:53 UTC

CHICAGO (Reuters) – Whenever the stock market breaches an old high – like when the Dow closed over 14,000 on Friday, the best mark since October, 2007 – it is time to look inward, not outward.

You could be happy that your portfolio looks pretty good, or you could remember how you felt in 2007 after feeling optimistic, then only to be crushed soon.

Given that you probably have a lot of year-end and tax-related statements coming in right now, you will see a lot of material to evaluate your investments. What to do next? Sell off winners? Hedge against a fall? Pick up laggards before they, too, go on the upswing?

Put your investment enthusiasm on a dimmer switch

Feb 1, 2013 13:30 UTC

CHICAGO, Feb 1 (Reuters) – Whenever there is an extended
rally in the stock market, blazing lights go on in the heads of
Main Street investors, signaling that it is time to join the
party.

As the S&P 500 reached a five-year peak at the end of
last week, on top of a 13 percent gain for the index last year,
enthusiasm for stocks approached fever pitch. More than $55
billion in new cash flooded in to stock mutual and
exchange-traded funds in January, according to TrimTabs
Investment Research. That is the biggest monthly inflow on
record, beating the previous record set in February 2000.

What to make of this exuberance? Investors are seeing a
clearer horizon after the “fiscal cliff” came and went without
hurting the market. Pending home sales took a dip in December,
but were up nearly 7 percent for the year, according to the
National Association of Realtors. Corporate earnings also look
relatively strong, with earnings growth of 2.5 percent expected
in the fourth quarter of last year, reports Factset Research. A
renewed prospect of personal wealth is piggybacking this
positive news.

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