Permanent Value

Weekly Update: August 2- 6,2010

Michael La Salle
August 6th, 2010

Stocks Higher, Jobs Report Disappoints

Stocks finished the week higher as the S&P 500 gained 1.82% and the Dow Jones Industrial Average was up 1.79%.   This comes as the most recent jobs report shows the private sector is still wary of hiring employees.

In economic news, the Institute For Supply Management reported that its manufacturing index fell to 55.5 in July from 56.2 in June, signaling the manufacturing sector’s, who led the economy out of the recession, strength may be fading.  Overall U.S. personal income in June was unchanged over the previous month, keeping the year over year personal income at an increase of 2.6%.  Disappointing news came on Friday as the July jobs report showed weakness particularly in the government sector.  Nonfarm payrolls declined 131,000 jobs in July, much higher than the expected loss of 70,000 jobs.  Despite the disappointing news in nonfarm payrolls, average hourly earnings improved to up 0.2%, and the average workweek for all workers rose to 34.2 hours from 34.1 in June.

In earnings news, Oshkosh Corporation beat analysts’ expectations as the U.S. specialty vehicle manufacturer announced earnings of $2.31 per share, 20.31% higher than expectations.  Pfizer, Incorporated announced earnings of 62 cents per share.  Expectations were set at 52 cents per share.  Proctor & Gamble Company disappointed this week as the conglomerate announce earnings of 71 cents per share, missing analysts’ estimates of 73 cents per share.

What opportunities are ahead?

During the past three years or so we have been in a low yield environment.  With three-year treasuries yields at less than three percent and money markets yielding less than one percent.  Investors have been looking to other investments to give them some yield.  One of the best places to seek yield as of late has been dividend paying equities.

Shortly after October 2007, when the U.S. stock market peaked, an increasing number of companies started cutting back on expenses and slowed the flow of money to investments, and began loading their balance sheets with cash and increasing dividend payments to shareholders.

As the economy fights it way back to where it once was, many of these companies are keeping this structure in place.  In fact, 15% of the companies in the Russell 3000 increased their dividends in the second quarter of 2010, almost double the average.

With many companies yielding between six and eight percent, it is no wonder the investing public has been shifting their investments to these companies.  The financial strength of these companies, paired with their ability to continue to raise dividends as the economy improves; we will also continue to watch the price of these companies grow.

Market Returns

  This Week Year to Date Last Year Last 5 Years
S&P 500 1.82% 0.59% 12.49% -8.54%
Dow Jones Industrial Average 1.79% 2.16% 15.10% 0.90%

 

Next Week’s Economic Releases

August 11 – International Trade

August 12 – Jobless Claims

August 13 – Consumer Price Index, Retail Sales, Consumer Sentiment