John Canally, CFA
Economist
LPL Financial

How Likely Is A “Double Dip”?

There has been increased talk recently about the possibility of a “double dip” recession occurring in the United States. A “double dip” recession would mean that the United States economy — which has most likely been in an economic recovery since the summer of 2009 — would slide back into another recession at some point in the near future. In our view, while the odds of a double dip have increased in the past few months, we don’t think a “double dip” is likely to occur given the current economic and policy backdrop. However, a sudden surge in commodity prices, a sharp increase in global central bank policy rates, a collapse in overseas economic growth, rapid reigning in of fiscal stimulus in the United States, and/or a dramatic flattening of the yield curve would cause us to change our view.

Highlights

After a blistering two-week stretch of mostly sub-par economic data, this week is a very quiet one for economic data and policy events in the United States.

The June employment report capped off another disappointing weak of economic data, reviving talk of a “double dip” recession.

How likely is a “double dip” recession?

To read the complete article CLICK HERE

When it comes to where we are in the economic cycle, expert opinions vary widely. Some experts think the economy could be headed for a double-dip recession, while others say it’s headed for a slow but steady recovery.

Rose was interviewed on this topic by Ben Baden, who wrote the following article published in Yahoo! News on June 21.

Article Highlights

• Be realistic.
  “The last of the last recovery dollars are being distributed out to the states and [it's] the end of the tax credits for home buyers, which were huge stimulators for the economy and helped it rebound last year,” says Rose Greene, certified financial planner with Rose Greene Financial Services in Los Angeles, an affiliate of LPL Financial. “It will not feel good, but it makes sense. This isn’t something that just happens when you wake up one day.”
• Don’t try to time the market.
  Greene says, investors shouldn’t gamble their money by trying to time the market. “The average investor needs to know that trying to time the market is a fool’s following,” she says. “We might get lucky once, but it will ultimately bite you.”

Read 5 Tips for the Average Investor on Yahoo! News, or download a copy saved as a PDF.

Weekly Market Commentary, June 1, 2010
Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• “Sell in May and go away” only works about one-third of the time. With a pullback having already taken place, we find little value in this old adage.
• We believe investors should “buy in June and stay tuned” this year.
• Staying tuned to the conditions in the economy and markets will be important to investment decision making in the coming months as the economy transitions from a recovery to sustainable growth.

The old adage of “sell in May and go away” has been repeated so many times we are still often asked if this is a sound investing strategy. We do not find sound reasoning behind this maxim. Instead, we believe investors should “buy in June and stay tuned” this year.

We expressed caution in mid-April, given our outlook for a pullback in the stock market. However, now that the pullback that began on April 23 has occurred, we have spent most of May calming fears of another stock market plunge and, in general, we believe this is a good opportunity to buy stocks rather than sell. Unfortunately, investors cannot simply buy now and go away since the headwinds for the economy and markets are increasing during the second half of the year. Investors must stay tuned to the transitioning conditions for economic and profit growth warranting a tactical approach to portfolio management.

The reasoning behind “sell in May and go away” stems from the historical evidence that stock market returns, on average, are weaker over the six months from May through October, by about 2%. However, returns during this period have been positive about two-thirds of the time in the post-WWII period. This means one should only “sell in May and go away” one-third of the time. We believe 2010 warrants a different strategy.

Staying tuned to the conditions in the economy and markets will be important to investment decision making in the coming months as the economy transitions from a recovery to an environment of sustainable growth. These economic transitions are often uneven as the drivers of growth shift from government policy to private businesses while the leading indicators of economic activity peak and momentum begins to slow.

We believe the market is due for a rebound, as we stated last week in our commentary, entitled: Ten Reasons for a Rebound. However, the rebound is likely to be followed by more volatility as headwinds arise in the second half of the year, for several reasons:

• As the Fed signals coming rate hikes.
• China’s economy begins to respond to the efforts to slow the pace of growth.
• Policy stimulus fades in the United States leaving behind the drag of a huge federal budget deficit.
• Europe’s growth and solvency problems continue.
• As economic indicators peak in the United States during the second quarter, economic momentum begins to slow.
• Investors must stay tuned this summer to find attractive opportunities when presented and successfully take profits when necessary. We will be watching the LPL Financial Current Conditions Index closely for the impact of these headwinds on economic and market conditions.
  

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IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial.

The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Weekly Market Commentary, May 24, 2010
Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• We believe this pullback is merely part of the higher volatility in the markets we have been expecting this year to accompany the transition from recovery to sustainable growth.
• We offer ten reasons why we expect the markets to rebound during the second quarter.
• We still believe that while the next week or two could be up or down a little, four or six weeks from now stocks will be up and headed back near the highs of April.

Our outlook for 2010 remains for modest gains in the stock and bond markets, accompanied by a lot of volatility. Over the last couple of months, we presented our reasons for why we believed the stock market, as measured by the S&P 500, was due for another 5-10% pullback. While the current pullback that began on April 24 came as no surprise, the month long decline has exceeded our expectations with a peak-to-trough decline of 12%. Nevertheless, we continue to believe it is a pullback and not the start of a new bear market. This pullback is merely part of the higher volatility in the markets we have been expecting this year to accompany the transition from recovery to sustainable growth.

The market pullback has a number of drivers:

• Financial reform legislation has weighed on the Financials sector.
• China’s measures to slow growth have been raising fears that the sudden withdrawal of stimulus to one of the world’s biggest growth engines may be premature and tip the global economy back into recession.
• Last week’s decline in the Index of Leading Indicators, the first decline in a year, is a sign that economic growth may be slowing.
• However, the big issue affecting the market has been the debt problems in Europe and fear of another global credit crisis.

We expect the markets to rebound during the second quarter for the following ten reasons:

1. Although unlikely to improve much in the near-term, the European debt and deficit problems are unlikely to get much worse. The trillion dollar rescue package has been passed ensuring adequate capital to meet the financing needs over the next few years for Europe’s most troubled economies. Europe has some silver lining to the problems they are facing since the lower euro is a boost to the competitiveness of European exports helping to balance out weaker domestic growth.
2. The derivatives and leverage tied to the sovereign debt is very different than the financial crisis of 2008 (for example, debt-to-GDP (gross domestic product) for Greece is 1-to-1, while at Bear Stearns and Lehman Brothers it was 40-to-1). The smaller magnitude of the debt problem is unlikely to lead to another global financial crisis.
3. The concerns over the debt problems in Dubai and Iceland faded quickly after a month or two of intense concern last year. The budget and debt problems now weighing on Greece are an aftershock of the global financial crisis and not a sign of a new crisis developing. The problems are akin to what many people and businesses that overindulged during the credit boom are now experiencing, as the negative consequences of the global recession have forced belt tightening to try to make ends meet while restructuring debt. That is what happens at the end of a credit crisis and recession, rather than at the beginning.
4. Fortunately for investors, expectations for the Eurozone are low and do not need to be cut drastically leading to further declines in markets. For example, U.S. exports to Europe, European oil consumption, and Europe’s GDP are all already expected to be very low or negative.
5. The problems in Europe are good for the U.S. consumer by putting more cash in consumers’ pockets. The falling price of oil is pulling down gasoline prices as we head in to the peak demand summer driving season and the money flowing into Treasuries is leading to lower mortgage rates and a new wave of refinancing
6. As indicated by the LPL Financial Current Conditions Index, conditions remain favorable for growth.
7. Stock market valuations are now low at a forward price-to-earnings ratio of about 13 times. Also, the stock market is technically oversold by even more than it was overbought in mid-April when we were concerned about a pullback, suggesting selling may soon stall and buyers attracted by value will re-emerge.
8. China’s growth remains on track and the weakness in Europe may keep Chinese officials from invoking further measures to slow their economy in the second quarter.
9. Financial reform legislation may see a lot of changes to moderate it in conference before it is signed by the President, given some objections by the Fed and Treasury. This may help stabilize the Financials sector which has been one of the sectors that has led the stock market lower.
10. The outlook for The Federal Reserve (Fed) rate hikes may now be pushed out with the futures markets now pricing in the first hike not taking place until 2011

We still believe that while the next week or two could be up or down a little, four or six weeks from now stocks will be up and headed back near the highs of April.

What would change our minds? Not a level in the stock market, but a level on spreads and other indicators of contagion like borrowing rates in Europe and signs of bank stress. Material deterioration in indicators of contagion such as:

• The TED spread, a measure of stress in the banking system based on the willingness of banks to lend to each other, has risen this year to a slightly above average 35 basis points (bps), but remains well off of the crisis peak of 463 bps in 2008 and below the levels of 2008 that led up to the peak of the crisis in October 2008.
• The level of European interest rates and credit default swaps, which haveboth declined from the peak levels prior to the announcement of the rescue plan, but some southern European countries are elevated from levels at the start of the year.
• The value of the euro, which has fallen sharply this year but has stabilized in the past two weeks around $1.24.
• Corporate bond issuance, which has contracted sharply reflecting tighter financing conditions.
• The volume of central bank liquidity swaps, which has picked up reflecting the need for dollar-based financing overseas.

These factors would prompt us to re-evaluate our outlook and may warrant a more defensive investment stance.

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IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing in international and emerging markets may entail additional risks such as currency fluctuation and political instability. Investing in small-cap stocks includes specific risks such as greater volatility and potentially less liquidity.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
A basis point is a unit relating to interest rates that is equal to 1/100th of a percentage point. It is frequently but not exclusively used to express differences in interest rates of less than 1%.

See our Important Disclosures

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Quote of the week

“It is easier to do a job right than to explain why you didn’t.”– Martin Van Buren

Job growth at last. Employers added 162,000 jobs in March, the biggest gain in three years. While some of the increase reflected temporary hires for the U.S. Census, private payrolls swelled by 123,000 last month. The jobless rate was 9.7% in March, exactly where it had been in January and February.₁

Consumer spending up by 0.3%. February’s gain was in line with the forecast of economists. Wages were flat last month after a 0.1% increase in January.₂

Is consumer confidence flat, or rising? Two polls tell two stories. The Conference Board’s March Consumer Confidence Index hit 52.5, up from 46.4 in February. In contrast, the March Reuters survey remained at 73.6, unchanged from February._3,4

Factory orders up 0.6%. The February number represented the tenth gain in the last 11 months. Excluding the defense category, the gain was 1.0%.₅

Home prices inch higher. The January S&P/Case-Shiller home price index (of 20 major real estate markets) showed prices up 0.3% for January and down just 0.7% from 12 months earlier, the smallest year-over-year drop in nearly three years.₃

Stocks have been red hot. At the close on April 1, the Dow, S&P 500 and NASDAQ had respectively gained 5.83%, 6.66% and 7.34% in a 5-week period. Thursday, the DJIA finished at 10,927.07, its highest close since September 28, 2008. Wall Street trading paused for a day in observance of Good Friday.₆

(Source: CNBC.com, BigCharts.com, ustreas.gov, bls.gov, 4/2/10)7,8,9,10. Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Riddle of the week.

A rooster sits atop a farmhouse. Its roof is unequally pitched. One half slopes down at an angle of 60º, and the other half at 70º. If the rooster lays an egg right on the peak of the roof, on which side is the egg more likely to fall?

Contact my office or see next week’s Update for the answer.

Last week’s riddle: Two-and-a-half artists spend two-and-a-half hours painting two-and-a-half models on two-and-a-half canvases. How many artists would be necessary to paint 24 models on 24 canvases in 20 hours?

Last week’s riddle answer: This would only require three artists. 24 artists can paint 24 models in 2.5 hours. Since the time available has increased by eight (20 = 8 x 2.5), then you can reduce the number of artists by the same amount (3 = 24 / 8).

Rose Greene is a Registered Representative with, and securities are offered through LPL Financial, Member FINRA/SIPC.

This material was prepared by Peter Montoya Inc., and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. http://www.montoyaregistry.com/”>www.montoyaregistry.com http://www.petermontoya.com”>www.petermontoya.com

Citations.
1 businessweek.com/news/2010-04-02/geithner-says-u-s-economy-entering-sustainable-growth-period.html [4/2/10]
2 forbes.com/2010/03/29/briefing-americas-open-markets-economy-consumer-spending.html [3/29/10]
3 npr.org/blogs/thetwo-way/2010/03/consumer_confidence_home_price.html [3/21/10]
4 blogs.barrons.com/stockstowatchtoday/2010/03/26/consumer-sentiment-i-know-somebody-must-be-doing-well/ [4/2/10]
5 fxstreet.com/fundamental/economic-indicators/us-factory-orders-rise/2010-04-01.html [4/1/10]
6 blogs.wsj.com/marketbeat/2010/04/01/data-points-us-markets-224/ [4/1/10]
7 cnbc.com/id/36147826 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=3%2F26%2F09&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=3%2F26%2F09&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=4%2F2%2F09&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=4%2F1%2F05&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=4%2F1%2F05&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=4%2F1%2F05&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=4%2F3%2F00&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=4%2F3%2F00&x=0&y=0 [4/2/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=4%2F3%2F00&x=0&y=0 [4/2/10]
9 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [4/2/10]
9 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [4/2/10]
10 treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [1/12/00]

Quote of the week.

“Nothing in life is to be feared. It is only to be understood.”– Marie Curie

Reforms become law. President Obama signed his long-envisioned health care reforms into law on March 23, and he will sign the amendments to the bill into law on March 30. Most of the major changes will take effect in 2014, when health insurance will become compulsory for nearly all Americans. New taxes will help fund the reforms. The Congressional Budget Office estimates that the modifications will cut the federal deficit by $118 billion by 2020._1,2,3

Home sales still underwhelming. Existing home sales dipped 0.6% for February while new home sales slipped 2.2% to another all-time low (although data only goes back to 1964). Any positives in the new Commerce Department report? Yes. The median sale price of new homes was about 5% above where it was a year ago.₄

A gain in durable goods orders. The 0.5% rise in February was accompanied by news that durable goods inventories increased by 0.3%, the best such gain since December 2008.₅

USDI surges north. When the U.S. Dollar Index is up 1.10% for the week (and 4.82% for the month), what happens with gold and oil? Well, gold and oil prices respectively fell 0.30% and 1.20% last week, with crude futures at exactly $80.00 per barrel at Friday’s close on the NYMEX.₆

Source: CNBC.com. BigCharts.com, usteas.gov, bls.gov, 3/26/10)8,9,10. Indices are unmanaged, do not incur fees or expenses, and cannot be invest into dircetly. These returns do not include dividends.

S&P 500 climbs 5.62% in 4 weeks. Stocks had another fine week from March 22-26, with the NASDAQ advancing 0.87%, the Dow 1.01% and the S&P 500 0.58% as part of a great 4-week run.₇

Riddle of the week. Two-and-a-half artists spend two-and-a-half hours painting two-and-a-half models on two-and-a-half canvases. How many artists would be necessary to paint 24 models on 24 canvases in 20 hours?

Contact my office or see next week’s Update for the answer.

Last week’s riddle: Is there a number made of eleven tens of thousands, eleven thousands, eleven hundreds and eleven units? If so, what is it??

Last week’s riddle answer: Yes – the number is 122,111. 110,000 + 11,000 + 1,100 + 11 = 122,111.
___________________________________________________________________
Rose Greene is a Registered Representative with, and securities are offered through LPL Financial, Member FINRA/SIPC.

This was prepared by Peter Montoya Inc., and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.comwww.petermontoya.com

Citations.

1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 voices.washingtonpost.com/44/2010/03/obama-to-sign-health-care-fixe.html?wprss=44 [3/26/10]
3 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
4 foxbusiness.com/story/markets/industries/industrials/february-new-home-sales–annual-rate/ [3/24/10]
5 reuters.com/article/idUSN239670720100324?type=marketsNews [3/24/10]
6 cnbc.com/id/36057788/page/2/ [3/26/10]
7 blogs.wsj.com/marketbeat/2010/03/26/data-points-us-markets-221/ [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=3%2F26%2F09&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=3%2F26%2F09&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=3%2F26%2F09&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=3%2F25%2F05&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=3%2F25%2F05&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=3%2F25%2F05&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=3%2F27%2F00&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=3%2F27%2F00&x=0&y=0 [3/26/10]
8 bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=3%2F27%2F00&x=0&y=0 [3/26/10]
9 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [3/26/10]
9 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [3/26/10]
10 treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [1/12/00]

Joblessness at 10.0%. This November figure is improved from October’s 10.2% mark. Another bright spot: payrolls slimmed by just 11,000 jobs last month.  (Analysts expected a reduction of around 125,000.)  Are we on the verge of  adding jobs to the economy?  The number of employed people rose by 227,000  last month, the first increase since April.1

Read here for the rest of this week’s economic update:

http://tinyurl.com/yhtom32