In the complex landscape of the global economy, quick and effortless profits remain a myth. However, gaining insight can provide guidance. This week, Zacks released a detailed analysis of S&P 500 earnings categorized by sector. As we near the close of 2005 and reflect on the year, let us share our best wishes for 2006 along with some intriguing insights from the Zacks report that you can ponder while enjoying your holiday festivities.
* Total earnings for the S&P 500 are projected to rise by 10.8% in 2005 and by 13.3% in 2006.
* The Materials and Consumer Staples sectors are the only two anticipated to show an increased rate in median earnings for 2006 compared to 2005.
While some eagerly anticipate it, others view the inverted yield curve with skepticism, either fearing its implications or dismissing its significance. Regardless of one’s stance, this development is prompting fresh discussions about the economic landscape in 2006.
When faced with an inverted yield curve, investors generally have two reactions: either ignore the issue—despite its recent appearance in the Treasury market for the first time in five years—or adopt the traditional belief that a recession is imminent.
The major oil suppliers have a simple message: Don’t worry, be happy. However, the discussions between OPEC and Russia regarding possible cooperative agreements warrant attention. This could potentially lay the groundwork for a new super cartel in the 21st century.
‘Twas the night before Christmas,
when along Wall Street
Not a trader was speaking,
even short sellers were discreet;
The last transactions were dispatched with care,
In hopes of creating one more billionaire;
Strategists were nestled deep in their beds,
While visions of higher trading volume danced in their heads;
And Spitzer with his phone calls, and Whitehead’s reply rap
Had frightened the smart money into a long winter’s nap.
But over at the ECNs there arose a clatter;
Forcing specialists to ask, What the heck is the matter?
And away to the Big Board they flew like a flash,
And screamed that their monopoly soon would crash.
The brand was sagging from new competition,
Giving momentum and power and threatening attrition;
But in truth the real change to appear,
Was a fresh choice of venue, for which investors did cheer,
With digital trading, so lively and quick,
They knew in a moment that this was no schtick.
So they sprang to their computers, and mice did click,
To trade on systems where commissions don’t prick.
They sang to accountants, to daughters and sons,
All’s not lost, save maybe a bank run.
But then one finally proclaimed, ere the trading finally ceased,
Maybe this time, just once, we won’t get fleeced.
(Year to date through Dec. 21)
Russell Capitalization/Style (total return)
Russell 1000 Value 8.0%
Russell 1000 7.3
Russell 1000 Growth 6.5
Russell 2000 Value 5.5
Russell 2000 5.5
Russell 2000 Growth 5.2
Russell Microcap 3.0
International Equities (price change, US$)
MSCI Emerging Markets 28.9%
MSCI EAFE (Developed Markets) 10.9
Bonds (total return)
10-year Treasury 3.9%
Lehman Bros. Municipal Bond 3.0
Lehman Bros. Aggregate Bond 1.9
ML High Yield Master II (junk bonds) 1.8
Commodities (price change)
Oil 34.3%
Commodities (CRB) 15.0
Gold 12.9
U.S. Dollar Index 12.5
S&P 500 Sectors (total return)
Energy 32.1%
Utilities 13.5
Healthcare 6.0
Financials 4.6
Consumer Staples 3.2
Information Tech 2.0
Materials 1.8
Industrials 0.9
Consumer Disc -6.4
Telecom Svcs -8.1
How can you tell there’s a bull market in energy? Governments are eager to tap into domestic oil and gas reserves. The straightforward approach of outright nationalization, reminiscent of the Middle East in the 1970s, seems outdated in our modern media landscape. This compels governments to adopt more nuanced strategies in their ownership maneuvers. Notably, the Kremlin has demonstrated remarkable skill in regaining control of significant portions of formerly private energy assets in recent years.
Recent reports indicate that Western music has been banned in Iran, according to an Associated Press story via Chron.com. The government stated that “Blocking indecent and Western music from the Islamic Republic of Iran Broadcasting is required,” citing cultural preservation.
Many insist that gold is not money, to which we respond, “Oh, really?” However, this argument continues to persist, with critics asserting that gold is merely a metal—a relic of a bygone era. While it’s acknowledged that gold once served as a medium of exchange, they argue its relevance has faded. We now live in an era dominated by fiat currency, having moved away from the gold standard since the Nixon administration eliminated it completely.
Source: Barchart.com
Highlighting the rise in headline inflation over recent years has proven largely ineffective in shifting perspectives. The annualized consumer price index increase has crossed 4% in September and October for the first time in over a decade. Yet, this surge is often dismissed as inconsequential—a mere consequence of the recent energy bull market and, therefore, not a genuine threat of inflation, as many have contended.
The economy is a fluctuating entity that can both give and take away. The latest report on consumer prices for November demonstrates this clearly, showing a welcome turnaround following yesterday’s less favorable news about the trade deficit.
In summation, the economic landscape continues to evolve, leaving investors with much to ponder as they embrace the new year. The insights shared here remind us to stay informed and receptive to changes that shape our financial futures. Cheers to a prosperous 2006!
