MARKET SENTIMENT - 2010/10/15
HALVORSON RESEARCH ASSOCIATES, LLC.
It appears that the business cycle is in recovery, and now everyone sees it, finally! HRA has been saying all year that earnings have been recovering, although the unemployment figures haven’t been good. The jobless rate remains at decade highs of 9.6%, despite growth in private sector jobs, a stable inflation picture, and attempts by the government and the Federal Reserve to stimulate the economy.
Export growth remains more related to the drop in the dollar than a measurable change in the import/export figures, but most of the 800 U.S. Stocks that HRA follows have become multinational, and can take advantage of being in, or getting into the two highest growth countries in the world, China and India. The growth of the U.S. economy will be partially fueled by U.S. companies doing well in these and other foreign markets.
Businesses are most bothered, or distrustful, of the direction of the government in policy and regulation. Many U.S. companies are hoarding cash due to the lack of confidence in the current regulatory environment. Freeing up this cash by setting policy, especially tax policies, which Congress has put off until after the elections, would get the economy rolling, more so than any government spending. With over $1.8 trillion in cash, business leaders need government to adopt low-cost measures and regulations that would promote innovation and growth by removing government obstacles and barriers.
The current administration is going through a business-bashing cycle, rather than trying to give incentives to business. If business leaders felt more confident about spending, the unemployment figures would benefit, as well as the overall economy, as the hoarded cash began to flow back into the market.
Despite all this uncertainty in government regulation and taxation, the U.S. economy and U.S. companies continue to show slow improvement, as our earnings growth indicator for 800 stocks shows an average earnings growth rate of 25.5%, up from the negative 25% of last November, and our HRA measure of market sentiment, our OU-P factor, shows that the stock market is still 18.7% under-priced, even after the gains we’ve seen since September 1.
WHAT DOES THIS MEAN FOR HRA?
The Standard and Poor’s 500 Index is up 5.48% year-to-date, while our theoretical portfolio of 30 stocks, called the HRA Favorite 30, is up 13.9%*, and the HRA Tiny Portfolio has shown cumulative returns of 20.3%*
*Note that the HRA theoretical portfolios, the HRA Favorite 30, and the HRA Tiny Portfolio, are theoretical in nature, showing the average growth of the stocks in each portfolio over each two-week time period, ignoring dividends, trading costs, fees, and other costs which would be applicable to actual traded portfolios. There is no cash position, and it is assumed that each position is held the complete period and is valued at the end of each two-week period. Changes to the portfolios are also assumed to take place immediately and with no cost. The portfolio recommendations may not be suitable for all investors, and the theoretical returns quoted do not reflect the returns of an actual traded portfolio.
The Favorite 30 Portfolio returns, although theoretical, show that a greater diversification generally leads to better returns over time than a smaller portfolio. HRA is interested in under-priced growth stocks, we feel that this is the time to be aggressively invested in the stock market, with up to 90% of disposable assets (those not necessary to meet immediate needs) going into the stock market. HRA feels confident that the recovery will continue, despite government intervention and regulation, and growth will continue, albeit at a slower rate than in the 1990’s and parts of the 00’s.
HRA recommends that each investor consult with their financial advisor before making changes to their portfolios, as every individual has different needs and risk aversion, and investment decisions should be made which are suitable to each individual investor.
HRA notes that not all investments are suitable for all investors: consult your investment advisor before making any major changes to your investments, and don’t forget to update your goals and risk tolerance as things change in your life and in the overall markets.
Good Luck, and Happy Investing!
Halvorson Research Associates, LLC
Janet Raphael, CFA Bill Halvorson, FSA Erik Hughes
239-738-4212 e-mail: JCR@HRAstockpicks.com