Friday, July 1, 2011

Halfway Home – Results as Expected (and they’re great!)

From the Desk of Joe Rollins

Thursday was 2011’s halfway mark, and even though the past six months have been volatile for the stock market, it continues to perform basically as I’d projected. During this time period, we’ve endured extraordinary geopolitical events. However, the stock market’s performance is correctly reflecting earnings and not headlines.

As I’ve indicated in prior posts, May and June were controlled by Wall Street traders who tried convincing investors that everything is a short-term trade only to reverse course before investors could respond. Both months were down a total of approximately 8% from April’s highs, and miraculously, the major market indices were up a stunning 3.5% the last four trading days of June. I’m convinced that it was the professional traders – not the investors – trading the market up and down during this past week. If they thought they’d catch everyone sleeping, they were wrong. Keeping our clients invested throughout the quarter – while undoubtedly a bumpy ride – was the right choice.

For the six months ended June 30th, the Dow Jones Industrial Average is up 8.6%; the S&P Index of 500 Stocks is up 6%, and; the NASDAQ Composite is up 5%. As readers of the Rollins Financial Blog likely recall, I projected that 2011 would provide double-digit returns. The fact that the S&P is up 6% for the first six months of the year is actually ahead of my 10% projection for the year.

In spite of the evidence reflecting that the U.S. economy suffered a mild setback during the 2nd quarter, the market still performed favorably. There are many reasons for the setback, but I can’t help but think that the slowdown had to do with the continuing fallout from Japan’s earthquake and tsunami disaster along with China’s obvious effort to slow its economy. But even with the slight decline in the economy, I don’t see any marked signs that it will decline to dangerous levels.

Although the 2nd quarter has come to a close, very few major American corporations have announced that they’ve suffered negative financial results. In the next 10 days, these corporations will start reporting their 2nd quarter earnings, which I think will be nothing short of spectacular. If earnings come in as expected, the stock market is quite fairly priced today. I expect for the market to continue to rise for the rest of 2011, and at year end, we will have enjoyed the third consecutive year of double-digit returns.

Even so, I continue to receive comments and questions about the slowdown in the U.S. economy. While an economy that is growing at 1.9% certainly isn’t robust, it’s also not at recession levels, either. Given that corporate earnings are so good right now and investments in international equities and bond funds have been lackluster, it appears that growth investments in the U.S. are the true winners thus far for 2011.

The U.S. has become a major export power this year. The lower dollar and the efficiencies U.S. manufacturers provide bode well for worldwide distribution. We hold a commanding export position in pharmaceutical drugs, high tech products, entertainment/communication gear, earthmovers, electric generators, medical scanners and jet airplanes. The rest of the world is far behind the U.S. in producing these high-end and specialty items. I don’t expect that to wane in the coming months.

I’ve also received some questions regarding the August 2nd deadline for raising the debt ceiling. Over the next few weeks, Democrats and Republicans must reach a compromise on a debt-reduction plan in exchange for raising the debt ceiling, and then they must write legislation to implement the deal. This matter is complicated and nerve-wracking for many investors, but I don’t think it is a grave financial threat to the U.S. Based on prior similar circumstances, I think a compromise will eventually be reached.

We are now only three months away from the federal government’s September 30th fiscal year end. Interestingly, the House Democrats haven’t even submitted their budget for this fiscal year end, nor have they submitted their budget for fiscal 2012. The U.S. Congress is so incredibly inept that it’s hard to take any deadlines seriously. Most investors believe that a deal will be cut either immediately before the August 2nd deadline – with both sides taking credit for saving the day.

While the first half of 2011 may not have been fabulous, it was at least satisfactory. If the inflation rate winds up being at 2.5% at the close of the year, it’s likely for investments to generate returns at four times that percentage. In the investing world, returns that are four times the rate of inflation create wealth.

How many of you have cash in a money market account or a CD instead of it being invested? Think about the economic effect of inflation on your investments. If you have cash in a money market account making less than one-tenth of 1% today, then you are missing the boat. With inflation at 2.5%, you are suffering a negative rate of return on your investments so far this year.

While there’s certainly no guarantee that the stock market’s returns will be the same for the last six months of the year as it was during the first six months, it seems fairly obvious that anyone who is investing at less than 1% will feel left out if the 3rd straight year of double-digit returns is realized. I fully recognize that I have been telling people for years that NOW is the right time to be invested. Notwithstanding these statements, there is no better time for you to put your underinvested funds to work.

As always, the foregoing are my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best regards,
Joe Rollins


In observance of Independence Day, the offices of Rollins Financial and Rollins & Associates will be closed on Monday, July 4th. Please note that all major U.S. stock exchanges will also be closed due to the 4th of July holiday.

If you require immediate assistance on Monday, please contact Joe Rollins at 404.372.2861 or Our office will re-open for business on Tuesday, July 5th at 8:30 a.m.

Be safe, and have a great holiday weekend!!

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