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MAKING CENTS OUT OF THE NEWS
Blog #42
(December 15th, 2011)
Spyglass on the Stock Market
By Tom McAllister, CFP®
Observations from the recent quarterly newsletter issued by RM Walker Associates are worth sharing with my clients and blog readers. My relationship with these money managers spans twenty five years and two generations of the Walker family. The current principals Craig and Rick, whom I’ve known since their boyhood, are now in their 40’s. Their father Bob is now retired; he and I have been good friends for most of our professional lives. I agree with the Walker Associates’ current stock market outlook…
The third quarter of the year is traditionally the worst for the stock market, and that was certainly the case in 2011. During the third quarter:
Many raw material companies appeared as the walking dead, suffering the worst quarterly performance in memory.
At the same time, third quarter earnings came in close to historic norms.
The best quarter of the year is often the final three months, and, at least for the past few weeks, 2011 appears true to form. Walker anticipates results will remain higher than expectations as energy refining and marketing remain strong, and overall corporate profits are better than expected.
European volatility continued to affect our markets, explains the Walker report, and “we expect to see elevated levels of volatility through and into the New Year.” If the Greece default on its debt, Walker expects the result to be a “speculative bottom”, followed by a “meteoric rise”. The rise, Walker explains, will come from European government intervention followed by coordinated world intervention.
Some positive signs at home which Walker points out include:
RM Walker analysts noted that three important measurements of companies are at ten year lows:
These measurements did not quite sink to the lows of 1974-75, (which Bob Walker and I suffered through), but had fallen almost that low before recent rallies. What this means to investors is that just by returning to historic norms, the price of the S&P 500 index would rise to a level; between 1307 and 1365. Walker says its target for spring of 2012 is 1415!
Which stocks are the best candidates to purchase now? The very issues which have been hardest hit this summer and fall, particularly those with a higher than average risk multiplier.
I concur with my money manager’s optimistic outlook and continue to urge my readers to adopt a fully exposed position in stocks with above-average dividend payouts.
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