Market Notes March 15, 2011

Market Update on Japan’s Tragedy

Update 8:00 AM March 15: We expect a significant drop at the open of the equity markets this morning. Panic selling is being seen. The best point of comparison we can provide would be the reaction of the equity markets on 9/11. The fear of the extent and impact of the situation is not dissimilar to what we are seeing today. 9/11 saw fear based selling immediately after followed by a period of recovery. In fact, most of the losses attributed to 9/11 were recovered by November of that year. While we cannot and do not predict the performance of any market or security, we believe that the equity markets will stabilize once the extent of the tragic events in Japan are fully understood. This could be followed by a potential recovery of panic fueled losses. It may take several days for the markets to stabilize and Lowe Wealth Advisors will continue to focus our resources on monitoring the situation. We do not expect the need to make substantial changes in our strategies but would do so if warranted (in our actively managed discretionary accounts).

We have continued to be moved by the tragic events in Japan triggered by the natural disaster. Our hearts go out to their citizens and loved ones.

Lowe Wealth Advisors spent the better part of Monday morning reviewing data, speaking with our analysts and discussing possible scenarios as the situation in Japan continued to unfold.

The reality is that the impact on the Japanese economy and the global economy will not be known until the full extent of the catastrophe is understood. The key financial industry questions at this time are as follows:

  • Will the impact of the catastrophe be primarily focused on Japan’s economy or might it spread regionally throughout Asia and beyond?
  • What sectors of the impacted economies may be most in peril and what sectors might benefit throughout a recovery process?

On the surface, these questions seem simplistic but the fact is they are really quite complex. The extent of the impact of the disasters will be based not only on the health of the Japanese economy and by the outcome of the nuclear dangers.

If the impact of these disastrous events is isolated to Japan and does not spread to other nations then the ultimate impact on the U.S. economic recovery may be muted. However, if the issues spread regionally throughout Asia and the Pacific (a major radiation contamination could wreak havoc on the region’s economies) then the global economic impact will most likely be more severe.

In a worst-case-scenario we anticipate that the financial and technology sectors would feel the brunt of the impact. Once Japan is stable and on the road to recovery, sectors such as foreign infrastructure and materials could potentially benefit.

Without question, we are experiencing the most unusual, difficult and unpredictable period of global events in our lives. These extraordinary circumstances that started with the uprising in Egypt are continuing to cause what we believe to be a temporary aversion to risk on the part of investors.

The unpredictability and the volatility of the environment we just described would generally lead Lowe Wealth Advisors to shift toward an allocation focused on potential preservation and potential stability in our actively managed discretionary accounts. Without question, we would be moving in that direction if not for the strength of our domestic economic numbers.

As we expressed in our communication yesterday, entitled “Tug-of-War,” we believe the fundamentals of the domestic economy will prevail particularly in the second and third quarters of 2011.

For the past two weeks we have focused on Saudi Arabia as being the pivotal point in the global instability puzzle. We must acknowledge that a significant radiation event that impacts beyond the borders of Japan (such as China, Australia, Taiwan, etc.) could become yet another pivotal point.

We hope that stability returns to the Middle East and Japan sooner than later. However, spreading instability in the Middle East or further devastation in Japan could mandate a shift away from our present strategy for 2011 toward a potential defensive posture.

Of concern on the local level and for Maryland residents, it appears that protestors are set to descend upon Annapolis this week to protest pension reform. While the Japanese situation may divert some media coverage, don’t be surprised to see Wisconsin-type coverage. Lowe Wealth Advisors will watch for changes that may directly impact our retired clients as well as broader economic state concerns.

At this time, we do not believe the budgetary issues that states are facing will be a significant impediment to economic growth in 2011. The drag could, however, begin to be felt in 2012 depending upon the strength of the overall economy at that time.

Lowe Wealth Advisors continues to monitor the situations and will keep you informed of our thoughts and any strategic initiatives. Please continue to read below for more information.

Market Notes March 12, 2011

The Tug-of-War

For the past few weeks the equity markets have been locked in a tug-of-war between favorable U.S. economic data and the price of oil driven by turmoil in the Middle East. These events have stirred some feelings of anxiety among many investors; the local events and protests we have seen in Wisconsin have only heightened the angst.

Just when we thought we had seen it all, Thursday, March 10, delivered a set of issues to further unnerve investors. Spain’s situation was a clear reminder that the Euro-zone debt crisis was far from over. Inflation in China appeared to be a larger issue than anticipated. And smaller protests in Saudi Arabia pushed investors over the edge and running for the exits.

On Friday, March 11, we woke to the news of the terrible disaster in Japan. Later that morning the U.S. economic data tugged back with a good report on retail sales and consumer spending that letup the pull resulting from the foreign worries of the day before.

It is Lowe Wealth Advisors’ opinion that the domestic vs. foreign dynamic will continue for the foreseeable future. Activity occurring in Libya and Saudi Arabia over the weekend will undoubtedly set the stage for next week. Whether the focus will be on oil prices or domestic economic strength remains to be seen.Our thesis remains unchanged at this time.

We believe that ultimately, the domestic strength will overpower the Middle East fears and our domestic focus in our portfolios will remain intact. While Lowe Wealth Advisors remains vigilant and has a strategy ready to implement in our actively managed discretionary accounts should conditions deteriorate, making a shift in the midst of a what we view as a short-term battle is not prudent.

Last week, in addition to receiving our core research from Morris Segall of SPG Trend and Ned Davis Research, we had the opportunity to hear analysts speak from Goldman Sachs and Fidelity. These sessions provided further conviction of our thesis and current strategies.

During times of this nature, in the midst of turmoil and uncertainty, it is worth restating our goal at Lowe Wealth Advisors. For our actively managed discretionary portfolios, we strive to adjust and adapt for potential risks and potential opportunities. It also bears repeating that we view investing as a marathon and not a sprint.

While there will be times during the marathon when the pace needs to be adjusted, a consistent approach and process is critical to a successful outcome. At times, other runners may be ahead, but they may expend all of their energy too quickly and fall back in position or worse, not even finish the race.

As with any marathon, our own progress may experience seasons in which indexes may outperform our approaches for a given period of time. We expect this especially in rapidly rising equity markets. Conversely, we would hope to be less volatile in rapidly declining equity markets. Our ultimate goal is getting you across the finish line successfully, and we believe the way to do that is not by simply beating an index. Rather, we attempt to provide potential stability and consistency over time.

For more information regarding our current outlook and strategies click on the link which follows to listen to our recent audio commentary. Click here for Audio Commentary. The audio commentary is intended for clients of Lowe Wealth Advisors only and is not intended to recommend a particular investment strategy.

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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us. Generally accounts less than $150,000 are not actively managed. An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Important Disclosures

  • Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
  • No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
  • An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.

*Lowe Wealth Advisors is a registered investment advisor.