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CAPITAL MARKET OUTLOOKS
Investors must make judgments about future asset class
returns in deciding how to diversify their portfolios.
Will stocks outperform bonds? How will international
stocks do compared to domestic stocks? Will large-cap
equities do better than small-cap equities? How will
government bonds do compared to corporate bonds? Will
long-term bonds outperform short-term bonds? In
attempting to answer these questions, we might use
historical returns as proxies for expected future
returns, but which historical returns should we use?
Long-term averages or more current results?
In Capital Market Outlooks, we look at the
near-to-mid-term return prospects for a wide range of
domestic and international asset classes. We compare
current valuations with historic norms and offer
judgments on likely future returns in view of current
valuation levels and trends in economic fundamentals and
investor sentiment.
ARTICLES
Third Quarter Corporate Earnings:
Losing Steam or Gaining Strength?
Sales revenue and net income for the 26 non-financial
stocks in the Dow Industrials Average increased in the
third quarter, but the quarter-over-quarter increases
were not as broad-based as those in the second quarter.
Recent stock price appreciation is evidence that
investors expect earnings improvements to continue.
Although analyst forecasts for fourth quarter results
are mixed, the longer term outlook is more uniformly
positive. Based on projected results for 2010, the Dow
26 appear to be moderately priced as of 30 November.
View an excerpt from the article. The full
article is available to subscribers only.
Trends in U.S. Corporate
Earnings, Sales and Earnings Recovery,
October 2009
Changes in quarterly sales revenue, expenses, and net
income for the non-financial companies in the Dow Jones
Industrial Average through the second quarter of 2009
appear to indicate that the recession ended in the first
half of 2009. Sales, cost of sales, gross profit
margins, operating expenses, and net income all
recovered from first quarter 2009 troughs. Despite the
recovery, aggregate net income increased very modestly
and was less than five years ago. The aggregate net
profit margin at 8.1% was the lowest in five years.
View article.U.S. Bond Market Outlook, August
2009
The U.S. bond market is the subject of the Advisor's
latest capital market outlook. Concerns about the size
of the federal deficit, the potential inflationary
impact of the growth in the Federal Reserve's balance
sheet, and a diminishing foreign appetite for U.S. bonds
have investors nervous about inflation and interest
rates. In our August outlook on the U.S. bond market, we
consider these factors, discuss the prospects for
inflation and interest rates, and provide return
forecasts for six major sectors of the market, from
Treasuries, to corporate bonds, to mortgage-backed
bonds. Overall, investors in the U.S. bond market are
likely to realize below average returns in most sectors
of the market over the next three to five years.
View
an excerpt from the article. The full article is
available to subscribers only.
U.S. Stock Market Outlook, June
2009
Investors in U.S. large-cap stocks are likely to realize
a positive return over the next four years, but the
range of possible returns is large, from 4% per year to
over 20% per year. In the interim, however, a reduction
in earnings and investor sentiment could result in
negative returns for 2009. In this outlook on the U.S.
stock market, the Advisor looks at how different
scenarios regarding the timing and strength of the
recovery might affect equity returns and what sort of
returns investors might expect taking all scenarios into
account.
View
article excerpt (Access to the full article is
available by subscription only.)
Economic Outlook, April 2009
Output, consumption, and employment continue to decline
as the United States enters the sixteenth month of the
longest recession since World War II. In this outlook on
the U.S. economy, the Advisor looks at key factors
affecting consumption and output and argues that the
economy is likely to contract through 2009. The United
States is becoming a nation of savers rather than
consumers; and neither government incentives nor cheap
credit are likely to inspire individuals to consume at
pre-recession levels.
View
Article
Capital Markets Outlook, March
2009
As of March 6th, the S&P 500 index had declined 56.4%
from it October 2007 peak. How much further do equity
markets have to fall? In this general outlook on the
capital markets, the Advisor warns that equity markets
may have further to fall. Extrapolations of the S&P 500
could bring the index to below 500 later this year.
View
Article
The Uncertain State of the
Economy, February 2009
Is the United States in for a lost decade of declining
asset values, price deflation, and zero interest rates?
Possibly. Much will depend on how the recession affects
peoples’ habits and values. In this outlook on the state
of the U.S. economy, the Advisor considers how consumer
behavior may be changed by the recession, and how that
changed behavior may prolong the recession. The
contraction now underway is bringing about a
recalibration of expectations that will result in a
long-lasting change in the nature and level of economic
activity and output in the U.S.
View
Article
Plus, see the Archives for
other Capital Market Outlooks.
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