February 7, 2012
January was a very strong month for the stock market, with the S&P 500 gaining over 4%. Historically this is a very positive sign. Since 1950, the stock market has closed the year in positive territory 89% of the time that January produced positive results. And since 1950 it has posted double digit gains all eighteen times that the S&P gained 4% or more in January.
The US economy is continuing to grow and unemployment is declining, albeit both are occurring at a very slow pace.
This good news is countered by the continuing European sovereign debt crisis and lack of a bi-partisan effort in the US to reduce the deficit. Neither issue will be solved this year nor do we expect any bells to ring when either crisis has passed. The Europeans have several years of difficult work before putting the matter to rest, yet the crisis could significantly escalate at any time.
In this environment we are continuing to emphasize high quality US large cap stocks and placing less emphasis on international investments. We believe this strategy will result in a lower level of risk and volatility. Longer term we hope to take advantage of the attractive pricing of European stocks and the growth in the emerging markets, but at the moment are taking what we believe is a more cautious approach. Incidentally, a recent article in the Washington Post mentioned that Brazil has recently passed England to become the world’s sixth largest economy and that foreigners were moving there to take advantage of the growing employment opportunities. This is an example of one country which we believe could offer sound long term investment opportunities, but could also be subject to volatility if the European sovereign debt crisis worsens and causes investors to seek safe havens.
This year we are taking several steps to serve you better. We recently negotiated lower fees from TD Ameritrade which will go into affect this quarter. This is the end result of a long process that we began quite some time ago. These lower fees make it even more attractive for clients who are utilizing Charles Schwab to transfer accounts to TD. We will provide further information about this and other positive developments very soon.
We will continue to monitor both the investments and the economic outlook and consider all new information as we make investment decisions.