Weekly Advisor Analysis
September 3, 2013
August Worst Month of the Year for Stocks
Heading into Memorial Day this year, the S&P 500 had already gained 15 percent in 2013 and
was on pace for one of the best years in history. Since that weekend, the S&P 500 has been
volatile, but is trading at roughly the same price. After shedding 1.84 percent just last week, the
S&P 500 finished the month of August down 3.13 percent, making it the worst monthly
performance since May 2012, according to CNBC. Concerns over a potential military strike on
Syria by the U.S., a looming deadline on the U.S. debt ceiling, and other lackluster economic
reports have caused investor anxiety to rise and stock prices to fall.
Source: Yahoo! Finance
Obama Calls on Congress to Strike Syria
Last Saturday, President Obama addressed the media in the Rose Garden of the White House to
inform the world that he believes the U.S. should hold Syria’s government-in-power responsible
for the use of chemical weapons on innocent civilians. However, rather than giving the executive
order himself to strike Syria, he has left the decision up to Congress. Should the U.S. Senate and
House of Representatives approve a military strike on Syria, it appears the U.S. is headed into a
fresh military conflict. Investors speculated all week as to what the exact implications of such an
attack would have on the financial markets. According to Bloomberg, this potential strife
contributed to weakness in U.S. equities last week. Interestingly, Congress is currently out of
session and both parties, the House and Senate, aren’t scheduled to return until September 9th, as
depicted below. Therefore, unless an emergency session is called to address this issue, it may be
weeks, if not months, before a final decision is made on this particular issue.
Debt Ceiling Deadline Approaching
According to an estimate from the U.S. Treasury Department, the U.S. government will no
longer be able to borrow additional funds by the middle of October due to current federal limits
on spending. Given the new Syria distraction, this leaves very little time for lawmakers to come
to an agreement on this issue before the deadline. Earlier this year, investors had hoped that
Congress would address this issue with more permanent legislation via wide-ranging tax and
spending reforms rather than simply kicking the can down the road with another temporary fix.
These hopes have most likely disappeared completely, now that Congress faces a fast
approaching deadline with not much progress made to date. Unless the $16.7 trillion ceiling is
raised, the government won’t be able to pay all of its bills, according to the Treasury
Department. Treasury Secretary Jacob Lew told Congress last week that after mid-October, the
government would have only $50 billion in cash available from partaking in emergency
measures that would likely be spent by the beginning of November. Failure by Congress to
extend the nation’s borrowing limit would result in, “irreparable harm to the American
economy,” as quoted by Jacob Lew in a now public letter to House Speaker John Boehner.
Source: Zero Hedge
Stock Valuations Increase Fastest Since Dot-Com Bubble
Bloomberg released an article last week highlighting the fact that price gains in the S&P 500 are
outpacing corporate profit growth at the fastest pace in fourteen years. According to the article,
the S&P 500 index has increased by 14 percent relative to corporate profits over this last year,
and now trades with a price-to-earnings multiple of 16 times earnings. The last time valuations
increased this quickly was the final year of the 1990s technology bubble, before the index began
to decline, eventually losing 49 percent from the market highs. However, it’s also important to
note that even though the pace has been similar to 1999, the S&P 500 is still trading with a priceto-earnings ratio of 16 times, much less than the 31 times multiple witnessed in 2000. Also, the
Bloomberg study points out that the average price-to-earnings multiple since 1957, during times
when the S&P 500 has been advancing, is 17.4, or about 10 percent higher than today’s multiple.
The S&P 500 traded at 17.5 times earnings in October 2007, when the index hit what was at that
time the all-time high price of 1,565.15.
Source: The Options Guide
Best regards,
UDB Financial
* Securities offered through LPL Financial, Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the
U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark
for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market
Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19 physical commodities and
was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of
the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to
predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* The S&P 500 is an unmanaged inden. Unmanaged index returns do not reflect fees, expenses, or sales
charges. Index performance is not indicative of the performance of any investment.
* Consult your financial professional before making any investment decision.
*This newsletter was prepared by Peak Advisor Alliance
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies
promoted will be successful.
* Stock investing involves risk including loss of principal.
Sources:
http://www.cnbc.com/id/100999465
http://www.cnbc.com/id/101000397
http://finance.yahoo.com/q/bc?s=%5EGSPC+Basic+Chart&t=5d
http://www.bloomberg.com/news/2013-08-30/u-s-stock-index-futures-are-little-changed-before-data.html
http://www.bloomberg.com/news/2013-08-29/dollar-gains-after-gdp-as-japan-futures-rise-oil-slips.html
http://www.bloomberg.com/news/2013-08-30/consumer-spending-in-u-s-increased-in-july-for-a-third-month.html
http://gai.georgetown.edu/wp-content/uploads/2013/06/2013-Congressional-Calendar.jpg
http://online.wsj.com/article/SB10001424127887323407104579037181763668714.html
http://www.bloomberg.com/news/2013-08-26/lew-tells-congress-treasury-will-hit-debt-limit-in-mid-october.html
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/08-2/debt%20limit%20GS.jpg
http://www.bloomberg.com/news/2013-08-25/multiples-expanding-fastest-since-dot-com-bubble-as-rally-ages.html
http://www.theoptionsguide.com/price-to-earnings-ratio.aspx
http://www.theoptionsguide.com/images/price-to-earnings-formula.gif