What happened to a September sell-off (Part 1)? With September just half-way complete, the major indices are up substantially. Here is the performance of the major U.S. indices:
S&P 500
Aug 31 Close: 1406.58 –> Sep 14 2012 Close: 1465.77 = September 2012 Return: 4.2%
Nasdaq Composite
Aug 31 Close: 3066.96 –> Sep 14 2012 Close: 3183.95 = September 2012 Return: 3.8%
The month is not yet up, but the warning that timing markets offers mixed (and likely random) results remains true. Building on that idea is that investors should look at timing companies, not timing markets. What surprised the markets was the U.S. Federal Reserve’s decision to show all of its playing cards: launching QE3.
Analyzing the impact of QE3 forces investors to become Macro Economists, making trading decisions based on macro events. This is a dangerous proposition and should be avoided: there are too many global events that cannot be predicted or forecast. The best thing an investor can do is to recognize that investors should move forward, but with caution. As Howard Marks pointed out in his letter to investors, the uncertainty at a macro level is more uncertain than in the past, but it was never as certain as people thought.
Business Section: Investing Ideas
QE is tempting investors to take on macro forecasts and to make investment decisions with a short-term time frame. This should be avoided. QE will encourage investors to take on unnecessary risks, such as buying high-P/E stocks, buying risky bonds with above-average yield, and ignoring ongoing political risks not only in the U.S. but in Europe and in China.
Investors should keep an eye on market volatility. The best ETF to follow is the iPath S&P 500 VIX.
1. iPath S&P 500 VIX ST Futures ETN (VXX, Earnings, Analysts, Financials):
A healthy market will also support a stronger financial sector:
2. Financial Select Sector SPDR (XLF, Earnings, Analysts, Financials):
3. Bank of America (BAC, Earnings, Analysts, Financials): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. Market cap at $102.92B, most recent closing price at $9.55.
4. JP Morgan Chase & Co. (JPM, Earnings, Analysts, Financials): Provides various financial services worldwide. Market cap at $157.91B, most recent closing price at $41.57.
In the bond market, the sustained low-interest rate environment will support a higher bond price:
5. iShares Barclays 20+ Year Treas Bond (TLT, Earnings, Analysts, Financials): TLT dropped from $124 to $118.30 last week after the Fed announced QE3. Egan Jones downgraded the U.S. From AA To AA-
6. iShares Barclays 7-10 Year Treasury (IEF, Earnings, Analysts, Financials): IEF peaked at $108.99 and closed recently at $106.57.
7. PIMCO Total Return ETF (BOND, Earnings, Analysts, Financials): Bill Gross’ ETF will benefit from the government purchase of Mortgage Backed Securities (“MBS”).
The resource sector will move faster if the market anticipates a resumption of growth. Watch for higher copper, oil, or iron ore prices. Companies in any of these sectors include:
8. Freeport-McMoRan Copper & Gold Inc. (FCX, Earnings, Analysts, Financials)
9. Rio Tinto plc (RIO, Earnings, Analysts, Financials)
10. BHP Billiton Ltd. (BHP, Earnings, Analysts, Financials)
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Dig Deeper: Access Company Snapshots, Charts, Filings
- iPath S&P 500 VIX ST Futures ETN (VXX, Chart, Download SEC Filings)
- Financial Select Sector SPDR (XLF, Chart, Download SEC Filings)
- Bank of America (BAC, Chart, Download SEC Filings)
- JP Morgan Chase & Co. (JPM, Chart, Download SEC Filings)
- iShares Barclays 20+ Year Treas Bond (TLT, Chart, Download SEC Filings)
- iShares Barclays 7-10 Year Treasury (IEF, Chart, Download SEC Filings)
- PIMCO Total Return ETF (BOND, Chart, Download SEC Filings)
- Freeport-McMoRan Copper & Gold Inc. (FCX, Chart, Download SEC Filings)
- Rio Tinto plc (RIO, Chart, Download SEC Filings)
- BHP Billiton Ltd. (BHP, Chart, Download SEC Filings)
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