Friday, February 8, 2013
Stock Market Metrics: Playing the Numbers
There are no infallible guides to stock market movements. However, that doesn't stop investors from using various measurements to try to divine the current and future direction of a stock's price or the equity markets as a whole. Here are some common methods (or metrics) for gauging the stock market.
Gauging volatility
The CBOE Volatility Index®, informally referred to as the VIX® and nicknamed "the fear index," measures real-time changes in the prices of a group of S&P 500 30-day options traded on the Chicago Board Options Exchange. When financial markets are stressed, prices of those options tend to rise as investors try to hedge any potential negative impact on their portfolios. The more concerned options traders are about potential instability, the higher the VIX tends to go; conversely, when fears subside, the VIX tends to be lower. How high is high for the VIX? During the worst of the 2008 financial crisis, it spiked to 89 at one point. Since then, it has gradually returned to more normal levels in the teens and twenties.
Moving averages
A moving average reflects a stock's average price or an index's value over a specified period of time (for example, the last 50 days). As a new average for the time period is calculated each day, the earliest day's data drops out of the average. The results are typically depicted as a line on a chart, which shows the direction in which that rolling average has been moving. For example, a stock's 50-day moving average (DMA) shows whether the stock's short-term price has been moving up or down; a 200 DMA smooths out shorter-term fluctuations by using the longer 200-day rolling time period. When a stock's price moves above its 50-day or 200-day average--two of the most popular gauges--technical analysts typically consider it a bullish signal that the stock or index has momentum. Conversely, when the price moves below its moving average, it's considered a bearish signal suggesting that any uptrend could be reversing.
Golden cross/death cross
When the short-term moving average of a stock or index rises above a longer-term average--for example, when the 50 DMA moves upward above its 200 DMA--the situation is referred to as a "golden cross." It shows that the stock's most recent price action has been increasingly positive, suggesting that investors have grown more bullish on the stock. Technical analysts also look for golden crosses with various stock indices--the S&P 500 is perhaps the most popular--to try to gauge the potential future direction of the equity markets.
The so-called "death cross" is the inverse of a golden cross. It occurs when the 50 DMA falls below the 200-day, and is considered a bearish signal, especially when seen in a broad market index such as the S&P 500. Such signals may or may not be valid; there are arguments on both sides. However, many of the automated trading systems that are responsible for a large percentage of all transactions are guided at least in part by such perceived quantitative signals. As a result, an index or stock can experience volatility--either up or down--as it reaches either of these points.
Fundamental metrics
Other stock market metrics rely on the nuts and bolts of corporate operations that are reflected on a company's balance sheet--so-called "fundamental data." Though based on the operations of individual companies, they also can be aggregated and averaged to suggest the state of an overall stock market index comprised of those stocks. The following represent some frequently used fundamental stock metrics.
Earnings per share (EPS): This represents the total amount earned on behalf of each share of a company's common stock (not all of which is necessarily distributed to stockholders). It is calculated by dividing the total earnings available to common stockholders by the number of shares outstanding.
Price-earnings (P/E) ratio: This represents the amount investors are willing to pay for each dollar of a company's earnings. Calculated by dividing the share price by the EPS, it can be used to gauge investor confidence in the company's future. A ratio based on projected earnings for the next 12 months is a forward P/E; one based on the previous 12 months' earnings is a trailing P/E. Like EPS, P/E is considered an indicator of how expensive or cheap a stock is.
Return on equity (ROE): This is a way to gauge how efficient a company is, especially when compared to its peers in the industry. This percentage compares a company's net income (usually for the last four quarters) to the total amount of shareholders' equity (typically, the difference between a company's total assets and its total liability).
Debt/equity ratio: Obtained by dividing a company's total liability by all shareholder equity, this percentage suggests the extent to which the company relies on borrowing to finance its growth.
Fundamental metrics based on the operations of individual companies also can be aggregated and averaged to suggest the state of an index comprised of those stocks.
Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved.
Wednesday, January 23, 2013
The Investment Policy Statement: A Portfolio's Road Map
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Wednesday, January 16, 2013
High-Income Individuals Face New Medicare Taxes in 2013
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Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
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Wednesday, January 9, 2013
Resolutions & Taxes
9785 Towne Centre Drive
San Diego, CA 92121-1968
75 State Street, 24th Floor
Boston, MA 02109-1827
January 3, 2013
Dear Valued Investor:
Instead of champagne toasts and party hats, Washington, DC chimed in the New Year with the same old dance of waiting until the last minute before demonstrating its near inability to work together.
Regardless, the so-called fiscal cliff, a series of economically devastating tax increases and spending cuts that were due to come on line at the start of 2013, was temporarily averted given a last-second deal between the Republican-led House of Representatives and the Democratic-led Senate. The compromise, known as the American Taxpayer Relief Act of 2012, is not the grand solution to address our nation’s surging debt issues that many had hoped for. Rather, it is more of a temporary band-aid that resolved the revenue (tax) elements of the fiscal cliff, but delayed addressing the tougher decisions surrounding spending cuts and raising the debt ceiling until February 2013. Specifically, the Act contains the following major provisions:
- Individual income taxes:
- The Bush tax cuts are permanently extended for individuals with taxable income less than $400,000 ($450,000 for married couples), and the alternative minimum tax patch is made permanent and indexed for inflation.
- Capital gains and dividends:
- There is no difference on tax rates for capital gains and dividends, although top rates will rise to 20% for individuals with taxable income greater than $400,000 ($450,000 for married couples).
- Personal exemption reductions:
- Reinstated were limitations on itemized deductions and personal exemptions for taxpayers with taxable incomes greater than $250,000 ($300,000 for married couples).
- Estate tax:
- The estate tax rate will move up to 40%, but the exemption will remain at $5 million, annually indexed for inflation (which is $5.12 million beginning January 1, 2013).
- Unemployment benefits:
- Extended unemployment benefits will be funded for another year.
The bottom line is that the federal income tax rate will remain the same for everyone except those individuals with taxable income greater than $400,000 ($450,000 for married couples), which is a change that will affect less than 1% of Americans. However, despite the headline that tax rates remain the same for most, the actual dollar amount of taxes paid will be moving higher for virtually every wage earner due to the elimination of the payroll tax cuts of 2011 and 2012. Payroll taxes help to fund Social Security by taxing 12.4% on wages up to $113,700 (in 2013), which was paid equally by employers and workers at 6.2% each prior to 2011. In 2011 and again in 2012, the President and Congress reduced the share paid by workers from 6.2% to 4.2%, which essentially put extra money via a tax cut in wage earners’ wallets. However, starting in 2013, the split will once again revert to 50/50 and result in higher taxes for essentially everyone. To put this in dollar terms, the Tax Policy Center estimates that households making between $100,000 and $200,000 will see an average tax increase of $1,784 in 2013. For higher income earners, the tax burden is much steeper given the combination of higher federal income tax rates, the elimination of payroll tax cuts, the limitation of personal deductions, and the higher tax rate on investment income.
Member FINRA/SIPC
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In aggregate, Congressional Budget Office analysis estimates that the tax increases and small spending adjustments outlined in the American Taxpayer Relief Act of 2012 will essentially result in $230 billion less available for spending in 2013. This would result in a drag on the economy in 2013 totaling about 1.5% of gross domestic product (GDP). This growth "anchor" of 1.5% is sizable considering the anemic economic growth in the United States of approximately 2% — but, is considerably less than the 3.5% drag that an unaddressed fiscal cliff would have generated.
All eyes now shift from the cliff to the ceiling. Despite averting the steep cliff, the United States’ limit on how much debt can be issued, known as the debt ceiling — along with the sequestered spending cuts and the funding for the government — all need to be addressed by late February, which means the next fiscal battle is less than two months away. The good news is that there may finally be clarity around future tax policy, which could trigger some consumer and business spending that has been on hold during this time of uncertainty. Additionally, markets do not handle uncertainty well and hopefully having some of these items addressed will allow them to move in an upward direction in the near term. However, there remains much work to be done in the coming months to overcome the contentious policy decisions that Washington delayed addressing, instead of fixing, this past week.
At a time when Americans across this great country are committing to change through the annual rite of New Year’s resolutions, I only hope that our leaders in Washington commit to turn their characteristic procrastination into a quick resolution to the remaining cliff-related hurdles that await us in the coming months.
As always, if you have questions, I encourage you to contact your advisor.
Happy New Year,
Burt WhiteChief Investment Officer
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
More information on the American Taxpayer Relief Act of 2012 can be found at: http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf
This research material has been prepared by LPL Financial.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.
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Member FINRA/SIPC
RES 4015 0113
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Is Your 529 Plan Making the Grade?
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Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc. All Rights Reserved. | |||||
Thursday, January 3, 2013
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Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc. All Rights Reserved. | ||||||
Monday, September 26, 2011
Providing Perspective on the Markets and Economy
September 21, 2011
Dear Valued Investor:
Continued concern over the debt burden of the developed world combined with the deeply divided political landscape in Washington, D.C. has many investors questioning the sustainability of the economic recovery following the Great Recession of 2008. Growth has slowed and we believe the chance of revisiting a recession has increased to approximately 35%. However, the most likely scenario remains that global growth will continue at its modest pace, which could offer an upside surprise for an increasingly bearish-biased market.
While these volatile markets are sending many investors scrambling for a rock to hide under to wait out the uncertainty, I believe turning over those rocks in search of investment opportunities may prove fruitful over the long term. Fear and emotion oftentimes defines short-term market reactions. However, when fear is at its pinnacle, a patient temperament, faith in your investment plan, and a commitment to opportunistic investments can ultimately turn short-term market challenges into long-term investment success.
One does not have to go far into the history books to find two periods where short-term fear transitioned into investment triumphs. Today’s investment environment is causing investors to face similar challenges to those that haunted them in 2008 and again during the summer of 2010. In both of those periods, prices had declined further than their fundamental values and proactive policy action by central banks served as the catalyst to lure opportunistic investors back into the market. I believe that the same environment exists today and the same elixir is needed for these uncertain times.
The crowded trade certainly remains bearish, but policy actions to stoke the economic growth fire have begun again in earnest. The Federal Reserve Bank announced today that they will provide additional stimulative monetary policy through Operation Twist. Moreover, many central banks around the world that had been intentionally slowing their country’s growth in an attempt to head off inflation are now switching from the brake to the gas pedal to provide more stimulus to jump start growth and the stalling global economic recovery.
The market appears to be suffering much more from a lack of clarity and a wave of uncertainty than it is a degradation in economic fundamentals. While growth has undoubtedly slowed, most corporations are still on pace to post near-record third quarter profits, business spending continues to be strong, and retail sales remain positive. In fact, buoyed by surging auto production and sales following the disruption caused by Japan’s springtime natural disaster, economic growth this quarter for the United States may be poised to not only be the fastest of the year, but also to be faster than the first two quarters of the year combined.
Despite this modest and far from disastrous outlook, uncertainty has outweighed optimism and question marks have outpaced clarity. The market is essentially suffering from a recession of confidence. With the mood decidedly bearish, the market does not believe in this recovery and investors do not have faith that policy makers can avert the second recession in three years. But, it is fear and emotional disbelief that often serves as the catalysts to lower expectations—and stock prices—to levels that even market bears see the value of owning. While the market still faces a challenging environment and has a wall of worry to overcome, I believe that patience and a vigorous commitment to your investment plan is the best strategy to weather this bout of uncertainty and serve as yet another example of the resiliency of the markets, the global economy, and American business.
As always, I encourage you to contact your financial professional with any questions.
Sincerely,
Bob
Robert J. Carr III
38555 Mound Rd., Ste 200
Sterling Heights, MI 48310
(586) 979-2678
(586) 979-8550 Fax
(800) 788-1979 Toll Free
Securities Offered throught LPL Financial
Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Federal Open Market Committee action known as “Operation Twist” began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. The action has subsequently been reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an alternative to quantitative easing by central banks.
This research material has been prepared by LPL Financial.
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