Week 22 Performance.......Crushing Jobs Report

We've seen this picture play out the last two years as May rolls in we see the equity markets take a tumble and the job machine slow way down.  The equity markets on Friday were already poised to open sharply lower but then came the May jobs report.  A gain of 69k vs. expectations of 125k to 150k.  To add insult to injury the April jobs number was revised down from 115k to 77k.  The unemployment rate ticked up to 8.2% from 8.1%.

Right now we are dealing with a two-headed monster; the uncertainty regrading Europe and a steady stream of data showing a slowing US economy.  During the 2008 financial crisis I can recall plenty of discussion around the decoupling of economies theory.  I was not buying that theory then just like I am not buying that theory now.  In essence the belief is that even if one economy slows say Europe or China the US economy can keep moving ahead.  We live in such an interconnected world that I just can't see how this theory holds water.

Supply chain lines are so global now that we buy and ship goods from China, Europe, and elsewhere and they likewise buy and ship us goods.  When our economy slows we have less money to spend on goods which can cause China to slow.

So that brings us to this current market.  In days like Friday everything gets sold even the good companies.  But how do you know if a stock that looks cheap today won't get cheaper tomorrow?  You don't know.  So we see the following three options which we have emphasized in previous posts

1. Get to the sidelines and stay out of the equity markets
2. Look to add positions that you want to own long-term
3. Run with what you currently have and don't put any new capital to work

These are just a few of the high level guidelines that you could follow.  For example at DWCM we are looking to add to our long-term positions but at a slower pace.  What we mean by that is that if we wanted to buy 500 shares of a company we may buy that position in smaller pieces, say 250 shares this week watch how the market responds and then buy the remaining 250 shares at a later point.  This strategy helps you scale into a position and protect you if the stock heads lower.

So what should an individual investor do?  You first have to look at your own specific financial situation and goals you are looking to achieve.  Your risk profile along with your goals should be driving your investment decisions despite the panic going on around you.  The ten year yield on bonds dropped down to 1.5% on Friday as people rushed into the so-called safe haven of US  treasury bonds.  Most people thought that the yield on the 10 year couldn't go any lower especially sitting at around 2%.  US treasury bonds are now being considered as the next great asset bubble ready to burst.

We didn't make any moves within the DWCM fund this week.  Although there are some positions that we would like to add to, sometimes it is better to just sit back and see how things play out.  Both the DJIA and Russell 2000 moved into negative territory for the year.  The NASDAQ and S&P 500 are both trying to hold onto positives gains for the year.

Even though the past few months have been rough on all equity markets as well as the DWCM fund we are still clearly in the black for the year with a positive 12.8% return beating all four major equity market benchmarks.  Our three favorite sectors include agriculture, fundamentally solid dividend payers, and selected technology names.

The Week Ahead

One issue with the trading action from last Friday was that there was no attempt by the market to rally at virtually any point especially during the last 30 minutes of trading.  What this means was that no one was compelled or saw any bargains to bring them back into the market.  This is seen as a very bullish indicator.  

With no news from Europe over the weekend it is hard to try to judge what Monday's trading day will look like.  You could very well see an oversold bounce as you could see continued weakness.

One asset class to keep your eye on this week is Gold.  Earlier last week Gold was trading as any other risk asset.  But then on Friday it started trading as a currency of last resort which we usually see during crisis situations.

• Mon -  Factory Orders
• Tue -  ISM Non-Mfg Index
• Wed -  Productivity and Costs
• Thu -  Productivity and Costs,  Bloomberg Consumer Comfort Index,  Ben Bernanke Speaks
• Fri -  International Trade,  Wholesale Trade

DreamWorks Capital Management Update
REGISTER NOW for the quarterly seminar "401k & 403b Rollovers, You have Options" on Monday June 18th at The Community House located in Birmingham, MI.  The event is free and you can register by calling TCH at 248-644-5832 or you can email me directly at pfenner@dwcmllc.com.  We hope that you will consider this great event and learn more about the services we offer here at DWCM.