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The Sandy Spring Way

What’s the costliest fruit?

April 30th, 2012 | By Beau Mercer

How about an apple, as in Apple Inc.? With more than $500 billion in market capitalization, Apple is the world’s most valuable company, according to Reuters. Last week, the company reported quarterly earnings that easily trumped analyst forecasts and this helped propel the S&P 500 to a 1.8 percent weekly gain. But it’s not just Apple that’s doing well. According to FactSet, a robust 78 percent of the S&P 500 companies that have reported earnings so far this quarter have beaten analysts’ forecasts.

Last week’s gains came despite some disappointing economic news which included the following.

  • A weaker than expected reading on U.S. gross domestic product (GDP), the broadest measure of all goods and services produced in our country.
  • A downgrade of Spain’s government debt—perhaps not surprising since the country now has a debilitating unemployment rate of 24.4 percent.
  • A second consecutive quarter of negative economic growth in the U.K., indicating they have slid back into recession.
    Sources: The Wall Street Journal, Yahoo! Finance, Bloomberg

Overall, the economy continues to chug along at a modest pace. Not quite fast enough to signal “all clear” and not quite slow enough to signal “recession ahead.”

Data as of 04/27/12 1-Week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks)

1.8%

11.6%

2.9%

17.9%

-1.3%

2.8%

DJ Global ex US (Foreign Stocks)

0.5

8.9

-14.0

12.4

-5.0

5.1

10-year Treasury Note (Yield Only)

1.9

N/A

3.4

2.9

4.7

5.1

Gold (per ounce)

1.3

5.7

10.1

22.4

19.7

18.3

DJ-UBS Commodity Index

1.8

0.0

-18.8

9.0

-4.1

3.6

DJ Equity All REIT TR Index

1.7

12.9

8.9

33.0

0.0

10.7

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

THE HOUSING MARKET STILL HAS THE BLUES

The housing market still has the blues, according to a widely followed barometer of home prices in the U.S. The S&P/Case-Shiller Index is designed to show how home prices are performing in the twenty largest cities and last week’s report showed the index is at its lowest point since October 2002.

Since the peak of the index in 2007 through February of this year, home prices have lost one-third of their value—and that’s even with record low interest rates on mortgages. Unfortunately, tough employment conditions have kept many potential homeowners on the sidelines. Adding to that, obtaining a loan from a bank remains difficult without very good credit.

Even though home prices continue to decline, a silver lining might be emerging. According to the National Association of Realtors, an index that measures the number of agreements signed to buy previously owned homes rose in March to its highest level in two years.

The increase in interested home buyers is coming at a time when supply is declining. Inventory levels in many markets are at their lowest level in years. For example, according to The Wall Street Journal, at the current pace of sales, it would take only 1.5 months to sell all the homes in Sacramento, CA. Considering pickings are pretty slim, home builders have also benefitted. New home sales in the U.S. are up 16 percent so far this year.

Unfortunately, this recent decline in available homes for sale may prove to be temporary because Fannie Mae, Freddie Mac and other banks have been slow to list for sale hundreds of thousands of foreclosed homes. In fact, banks and other investors are believed to hold 450,000 foreclosed homes while an additional 2 million are currently in the process of being foreclosed.

Ultimately, the solution to the housing blues may be strong economic growth. And as last week’s GDP numbers show, that strong growth hasn’t started yet.

Weekly Focus – Think About It

“In order to get a loan you must first prove you don’t need it.”
–Murphy’s Law