Editor’s note: Marc Leavy,CFP? is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
There has been quite a run in the markets since March; the DOW has climbed to over 9000 from 7400. Year to date the Dow Jones Industrials are up over 10 percent and the NASDAQ is up over 20 percent. Friday’s sell-off was a welcome break in the action. The market could use some time to consolidate and strengthen before going higher.
The next level of resistance appears around 9400. It is a strong level of resistance and will take some volume and momentum to push through. Many of the market’s sectors have moved above their twelve-month highs and overall the market appears strong.
Although the economic news this week was weak, that only bolsters the probability of another Fed rate cut. This cut would be the “lucky” 13th. Earnings do seem to be improving, there is a dearth of business spending. Businesses seem reluctant to spend given the uneven nature of the recovery. After business spending increases and the economy heats up, the unemployment numbers should move down below the 400,000 range.
Wholesale prices dipped in May, once again setting off deflationary alarms, albeit, most of the decline came in reduced energy prices.
The announced weakness in consumer sentiment was disappointing, which was well below the consensus estimate. The trade deficit declined slightly, again due to falling oil prices overseas.
Money market funds are having a difficult time squeaking out a yield because rates are continuing to decline, while the fees associated with the funds are not. One alternative for investors is the “ultra short” bond fund. These funds invest in paper (bonds) that have very short – ultra short – maturity or duration. Duration is the average maturity of the fund. This ultra short duration will protect investors when/if interest rates rise. These funds are not technically money markets but have a very stable Net Asset Value.
You can find info on these funds at www.morningstar.com. The yield or total return should be 200-300 basis points higher than money market funds. Be sure you are getting a very short duration or you may be putting your principal at risk. These funds should prove a safe haven for you to maintain cash or dollar cost average into the market. Given what we know today, I expect the market to be higher throughout the year.
The short duration fund should help you keep some powder dry and boost the yield on your nest egg.
Happy Father’s Day.
Marc Leavy, CFP? is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning for a fee. You may contact Marc at [email protected] or visit www.principledinvesting.org.
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